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SOS – Financial education needed in the workplace


A recent joint report by the National Association of Pension Funds (NAPF) and the Pensions Institute (PI) at Cass Business School has found that half a million people retiring each year are being dramatically short-changed in terms of their total future pension income because of overwhelming obstacles that prevent them getting the best deal.

When they retire, people in the private sector saving in a 'defined contribution' pension - now the most common form of company pension scheme - use their pension pot to buy an annuity from an insurer. This gives them a regular income and is a one-off, irreversible decision that sets the size of their pension for the rest of their life.

According to the report, fewer than one in five people have the financial know-how needed to pick the right annuity at the best price. The rest lack sufficient understanding of factors like interest rates, inflation and longevity, and need some form of advice. And those savvy enough to 'shop around' for the best rate struggle to do so because the best shops are not signposted. It is virtually impossible to find a specialist adviser who covers the whole market and who is willing to help those with smaller funds.

The report also uncovered evidence of sharp practice and murky pricing in the annuity market, putting unsuspecting consumers at a huge disadvantage.

David Blake, director of the Pensions Institute at Cass Business School comments: "This report is a wake-up call to the pensions industry, the government and the regulators. If the annuity system is not radically overhauled, employees in defined contribution schemes in the private sector will continue to suffer massive detriment and the government's new auto-enrolment regime will fail the very people it aims to help secure financial independence in retirement."

However, more immediately it concluded that people get "too little support" from employers or providers when making a decision about their annuity - often they get nothing more than a leaflet pointing them to a website with a postcode-based search engine.

As ever, the workplace is the best place for providing education and knowledge – whether related to pensions, annnuities, general financial planning, health, or myriad other topics. Good employers will hopefully rise to the challenge in supporting their employees to reap the best rewards from a system that most have paid into with the best intentions and trust in future rewards.

And for those who are younger, financial education is definitely needed about the options available, aside from pensions and annuities, to provide for future financial needs and retirement.


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