Four questions employees are asking us about their investments and savings

Having enough money to retire comfortably means people will need their pensions and savings to work hard for them and grow over time. Thanks to automatic enrolment, employees are more familiar with their pensions than ever. But the world, and jargon, of investing still feels like a barrier to success for some.

In a 2020 survey, the Financial Conduct Authority (FCA) found that only 32% of UK adults feel they have a high level of knowledge regarding financial matters. It hints at a serious knowledge gap for a large proportion of adults in the UK.

As part of our efforts to move the dial in this area, our Financial Wellbeing team ran a series of investment clinic webinars in March. The webinars were designed to help our clients, your employees, make decisions about their savings and investments to have a lasting impact on their future.

At the end of each webinar, we opened the floor to questions. We wanted to share the most commonly asked questions as well as the impact the answers could have on you as an employer.

Please remember that the information in this article should not be construed as personal financial advice.

Which account is right for me?

The benefit of employer contributions means that most people saving for later life are better off contributing to their workplace pension where possible. Although exceptions do apply.

Pensions are designed for retirement and offer several tax benefits to incentivise saving. Personal contributions typically benefit from tax relief for employees at their highest marginal rate. And if you offer contributions via salary sacrifice, members receive a National Insurance saving as an added bonus.

Providing a workplace pension that members can engage with can help employees achieve a larger pension pot, and ultimately can result in a higher standard of living in retirement.

There are situations where flexibility is called for, particularly if cash may need to be accessed before retirement. This is when other ways of saving could be considered. Individual Savings Accounts (ISAs) allow people to pay in up to £20,000 per tax year. Any savings or investments held inside an ISA are free from UK Income and Capital Gains Tax. Tax rules can change and benefits depend on individual circumstances.

A Stocks and Shares ISA allows you to use your savings to buy shares, funds and other types of investments, giving them the best chance to grow over time. Although, unlike the security of cash, the value of investments can fall as well as rise, meaning you could get back less than you invest.

HL can facilitate payroll contributions to both a HL Group Stocks and Shares ISA and an HL Group Fund and Share Account. This means that your employees can make investments with less hassle. And being able to invest money via payroll can result in greater engagement than may otherwise be achieved. Additional savings options can form a fantastic part of your overall benefits package.

More about Workplace Savings

Where should I invest?

Employees aren’t always aware of where their pension is invested, or that it’s invested at all. Our Financial Wellbeing team is well placed to provide details about their default pension fund and how it works, as well as covering other available investments.

Typically, the default fund is a well-diversified global investment, containing riskier elements such as shares, as well as less volatile investments like bonds. Helping members understand basic investment principles, in the context of their default fund, builds the foundation for making their own informed investment decisions.

The default fund won’t be right for everyone and we give employees the flexibility to keep their pension invested in the default fund or make their own choices as they see fit. To help here, we also have a wealth of tools for helping employees make their own investment decisions.

Our Wealth Shortlist is a list of investments that our analysts believe have long-term performance potential. It’s a great place to get started. We also have our Master Portfolios, which will help investors put together a suggested portfolio based on how much risk they want to take and how much they invest.

For those who want to make their own investment choices, there is no shortage of choice – HL offer access to over 3,000 funds, as well as individual shares, bonds, investment trusts and exchange traded products from the UK, North America, and selected European markets.

How do I know what to expect in retirement?

According to the same 2020 FCA survey, 58% of people aged 45 and above who haven’t yet retired have put little or no thought into how they will manage financially in retirement. So, it’s not surprising the question of retirement comes up frequently.

The key here is quantifying, in real terms, the annual income members are likely to achieve in retirement.

The full State Pension for 2021-22 provides just £9,339 per year. So, on its own, is unlikely to meet the minimum expected retirement lifestyle for many people. Our Pensions Calculator can help rationalise what people can expect to receive in retirement based on the current value of their workplace and private pensions as well as how much they’re currently contributing.

We aim to highlight how reviewing contributions well before retirement, can have a significant impact when it comes to the annual expected income at retirement.

What support is available?

Our Financial Wellbeing team is on hand to provide seminars and host one-to-one meetings, going in depth with your employees and assisting them in making their own well-informed decisions. Should further support be required, we have an advice service which may be able to help.

Our Bristol-based helpdesk is open six days a week to answer employee questions and to help them navigate the tools available to them.

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