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The introduction of workplace pensions has forced both small business owners and employees to become more aware of pensions.

Despite the recent attention around the importance of pension planning, The Association of British Insurers (ABI) recently reported that some are taking ‘too much’ from their pension pots, with 3,379 people taking more than 10% from their income at one time.

It’s speculated that the reason for these large withdrawals is due to the introduction of income drawdowns, or ‘pension freedoms’, which began in April 2015.

Income drawdowns are a form of pension saving which allow the individual to withdraw an unlimited amount of income from their pension, with 25% of the funds able to be withdrawn as a tax-free lump sum.

Patrick Connolly, certified financial planner at Chase de Vere, notes on the fluctuating nature of the income drawdown, saying it “exposes you to market movements, making it the riskier option”.

In the year when ‘pension freedoms’ were introduced, there were 300,000 lump sum withdrawals from pensions, averaging £14,500 each, according to the ABI.

To help employees better understand their pensions and avoid leaving themselves short in the future, here are some accountant-approved tips for advising employees on managing their pensions.

Show interest in employees’ financial wellbeing

This July a report by Wealth Wizard showed that 39% of employees want their employer to care about their financial wellbeing. 57% said that they’d be more likely to stay with an employer for longer if they demonstrated that they cared about employees’ finances.

You can not only improve employees loyalty to a company by showing an interest in their financial wellbeing; you can also increase productivity.

In fact, of those surveyed 67% of employees said they would consider it to be irresponsible if an employer didn’t provide advice.

Show an interest in employees’ finances by setting up talks or presentations that aid them with the facts of financial planning. This will benefit them with their current finances and plans for the future.

Encourage employees to plan ahead

On the lead up to the introduction of the workplace pension, the National Association of Pension Funds (NAPF) surveyed employees in 2012, and reported that 45% did not trust their employer on pensions.

The survey also showed that only 35% of employees believed their pension would give them enough income to last their retirement.

Encouraging employees to take care of their financial planning now will strengthen their bond with the company and improve their attitudes to managing their pension in the future.

While you can help employees plan for their pensions, there are certain rules around giving employees financial advice. You can make sure you only give employees factual and unbiased information by pointing them to information on the pension schemes.

Give employees information about tax relief they may be eligible to receive and give them documents relating to the workplace pension scheme to keep them informed.

Open the companies’ accounts

A study by the National Center for Employee Ownership (NCEO) found that companies that revealed financial information to their employees saw a 1-2% sales bump.

Providing the companies financial information to employees may sound risky, but there are multiple benefits for both the employer and the employee.

The more you’re transparent about company finances, the more stable employees will feel in their current employment, and they will feel encouraged to plan their own long-term finances.

‘Open book management’ will also give staff more input into the company accounts and help them learn about finance, enabling them to manage their own more successfully.

Have you provided your employees with information about their pension? You can find information on the workplace pension here.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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