How to simplify pension decision-making

Mak­ing sense of retire­ment options can be dif­fi­cult at the best of times. There are many ways that peo­ple can choose to receive their income from their pen­sion sav­ings when they stop work­ing, includ­ing tak­ing out an annu­ity or going down the flex­i­ble retire­ment route, where they take con­trol of their own income.

That’s why it’s key to pro­vide pen­sion scheme mem­bers approach­ing retire­ment and retirees with the right tools to help them make informed deci­sions about what hap­pens with their pen­sion sav­ings.

The UK gov­ern­ment intro­duced auto enrol­ment in 2012 to remove the bar­ri­ers from sav­ing for retire­ment by requir­ing all employ­ers to estab­lish a work­place pen­sion which their employ­ees auto­mat­i­cal­ly join and receive employ­er con­tri­bu­tions towards. It makes sav­ing for a pen­sion eas­i­er because the employ­ee doesn’t need to wor­ry about join­ing a scheme, deter­mine how much of and where their mon­ey is being invest­ed.

The prob­lem is, though, that as peo­ple near retire­ment, they have to con­sid­er a host of dif­fer­ent fac­tors relat­ed to their pension(s). They must think about how large their pen­sion pot will be when they retire, how much income they need to receive when they stop work­ing , how long they might live, and how they are going to bridge the gap between the income they live off now and what they will need to live on in the future.

With a defined ben­e­fit scheme, these dif­fi­cult deci­sions are tak­en out of indi­vid­u­als’ hands by the teams of pro­fes­sion­als that run their pen­sion schemes, includ­ing actu­ar­ies, invest­ment advi­sors and man­agers and spon­sor employ­ers, who pro­tect scheme mem­bers’ retire­ment mon­ey. In a defined con­tri­bu­tion scheme, using a flex­i­ble retire­ment solu­tion, mem­bers have to make all of these deci­sions them­selves.

But com­pound­ing this is the com­mon prob­lem of hav­ing mul­ti­ple pen­sion schemes with dif­fer­ent employ­ers and dif­fer­ent pen­sion providers. Because the funds are held in dif­fer­ent places, peo­ple may find it chal­leng­ing to assess the com­plete val­ue of their pen­sion.

To help peo­ple under­stand their pen­sions bet­ter, SEI has built an open bank­ing app in con­junc­tion with Mon­ey­hub. If the user has more than one pen­sion scheme, the app enables them to con­sol­i­date all their ben­e­fits in one place and see their finan­cial net worth.

This app also pro­vides mem­bers with mod­els to cal­cu­late how much they need to have in their pen­sion pot if they want to draw a set income for a set peri­od. Sim­i­lar­ly, if they have a cer­tain amount of funds and have esti­mat­ed they are going to live for a cer­tain peri­od of time, and tak­ing into account invest­ment growth, they can work out how much they will receive per month, quar­ter or year.

The app also allows users to set the amount they receive on a month­ly basis and will send out an alert if their out­go­ings exceed that income. They can then top up that income to make sure there’s enough mon­ey in their cur­rent account, while ensur­ing their pen­sion funds don’t become deplet­ed and remain held in a tax effi­cient envi­ron­ment.

SEI also pro­vides in-per­son and online sup­port to help mem­bers con­fi­dent­ly make com­plex pen­sion deci­sions. That includes face-to-face meet­ings and sem­i­nars designed for peo­ple reach­ing retire­ment to get them think­ing about how much they have in their pen­sion, what sort of income they might need when they stop work­ing and whether they can save more.

Retire­ment does present peo­ple with a num­ber of chal­lenges, par­tic­u­lar­ly around under­stand­ing and man­ag­ing mul­ti­ple sources of pen­sion sav­ings, but with inte­grat­ed tools like the app SEI pro­vides its mem­bers, the pen­sion land­scape can be more eas­i­ly nav­i­gat­ed.

For more infor­ma­tion on SEI’s mas­ter trust solu­tion or help with your retire­ment needs, vis­it seic.com/en-gb

Pro­mot­ed by SEI