Retirement adequacy increasingly a business planning risk

Employers risk being caught out by rising costs and workforce planning challenges if they fail to address retirement adequacy, warns Hymans Robertson. In its latest paper, Retirement adequacy: identifying future risks in your workforce, the firm highlights how financial stress, changing retirement behaviours and an ageing workforce can affect employee productivity, absenteeism and workforce planning. The paper argues that retirement adequacy is no longer just a pensions issue, but a business challenge that employers need to understand and actively manage. Employers need to understand where adequacy risks exist within their workforce and take action now, before those challenges become harder and more costly to manage.

Underpinned by its Guided Outcomes (GO) modelling, the leading pensions and financial services consultancy shows that significant numbers of employees may be at risk of inadequate retirement outcomes. The paper also explores how potential policy developments, including auto-enrolment reform and higher contribution requirements, could increase costs for employers while not necessarily delivering the best outcomes across an entire workforce. Understanding these risks now allows employers to take a more strategic and targeted approach before external pressures force change.

Commenting on the growing commercial impact of retirement adequacy, Mark Stansfield, Senior Actuarial Consultant, Hymans Robertson, said:

“Retirement adequacy is increasingly becoming a business issue, not just a pensions issue. Many employers are already dealing with the effects of employee financial stress and changing working and retirement patterns, all of which can impact productivity, workforce planning and long-term business performance. Employers can’t afford to view inadequate retirement outcomes as something that sits outside their wider people strategy. To make informed decisions, they need a clear understanding of how retirement adequacy risks are affecting their own workforce.

“The challenge is that retirement adequacy risks are not spread evenly across an organisation. Some groups may be on track for good outcomes, while others face a much greater risk of falling short in retirement. Without understanding where those risks exist, employers can struggle to target support effectively or make the best use of their pension spend. That is why workforce-specific analysis is becoming increasingly important.

“There’s also a risk of focusing solely on future policy changes. While potential future reforms such as changes to automatic enrolment and higher contribution requirements would increase employer costs, they may not solve the adequacy challenge for every workforce. Employers that understand their workforce today will be in a much stronger position to respond to future change, shape their own strategy and improve outcomes for both their business and their employees.”

Commenting on the importance of considering adequacy alongside wider employee outcomes, Hannah English, Head of DC Corporate Consulting, Hymans Robertson, said:

“Retirement adequacy cannot be viewed as a narrow pensions issue. Employees need to balance long-term saving amongst day-to-day financial pressures. However, for many retirement saving still feels distant and many may fully start to understand the scale of any retirement shortfall once dashboards make their pension position more visible. That could change the conversation between employees and employers very quickly.

“Employers therefore need to think about pension design as part of a broader workforce strategy. The question is not simply whether contributions should rise, but whether current support is helping different groups achieve better retirement outcomes in a sustainable and fair way. By looking at the interaction between cost, adequacy and workforce demographics, employers can make more informed decisions about their strategies. This can avoid unintended consequences of poorly designed solutions and also aid in creating reward strategies that attract and retain talent.

“Spending time to understand the issue now could significantly reduce problems later. It gives employers time to adapt strategies, communicate clearly with employees and build a pension strategy that supports both the business and its workforce.”

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