Small and Medium Sized Businesses (SMEs) are major employers. While large corporations are more likely to make the headlines for their employment practice, SMEs actually employ a higher percentage of the workforce.
Many people associate working for an SME with a better working environment and less stress – but there can also be downsides. For instance, surveys consistently show that SMEs don’t consider their employee’s retirement savings as significantly as they should. A survey by Standard Life revealed that while 92% of employees considered workplace savings and retirement plans an important factor, many SME executives are not supporting staff well enough when it comes to retirement and pension planning.
If you are a small business owner, you may need to start putting more effort into helping employees save for their retirement. This doesn’t mean putting aside money – it means providing education and information, as well as encouraging the right thought process.
Here, we take a look at what SMEs can do to help their employees save for their retirement. Unsurprisingly, this should start with their pension.
Understand the different pension schemes
The pension remains the most crucial form of saving for retirement. However, there are still people who actually have no pension savings. Indeed, according to recent research 17% of people aged over 55 have no pension savings at all. Others are saving, but aren’t actually doing enough to ensure that they can enjoy the same standard of living in retirement as they have been while working.
SMEs can make the process of saving for a pension easier by helping staff to really understand the types of pensions available and what they can potentially save.
“There are several different types of pension schemes,” says Adam Reeves of Reeves Financial. “Some are run by employers, others you can set up yourself. With so many options available, it is always a good idea to speak with an Independent Financial Adviser before making your investment.”
There are two key types of pension that can be set up:
- Defined benefit pension – this type of pension pays a retirement income with the amount determined by your salary and how long you have worked for the employer. They come in final salary and career average schemes. These types of schemes are much rarer and are generally only found in the public sector, or in older workplace schemes.
- Defined contribution pension – this is the standard form of pension scheme – you build up a pension pot over your career, and the amount that is paid out in retirement is based on how much you and your employer contribute. Employers can provide this type of pension scheme to staff, but these schemes can also be set up independently by individuals.
However, there are various different iterations of this type of scheme. So, it is important for employers to help their staff understand the range available to them. Providing useful information, or even giving access to financial advisers can help employees make smart decisions with their money as they save for retirement.
Explore the alternatives
Of course, it is also true that there are alternatives to pensions when saving for retirement. It is up to employers to ensure that they make it as easy as possible for employees to understand that they can take these options too.
For example, some workers choose to invest money in stocks and shares in the hope that this will provide a significant enough return to fund their retirement living. One of the potential downsides here is that this kind of investing does not necessarily lock away your profits for spending once you’ve retired. It could be tempting to cash out early and use funds intended for retirement.
If employees aren’t sure about a pension but don’t want all of the risk associated with investing in stocks, another option could be funds. Funds include a range of different shares and assets, and they are organised by a fund manager. They are considered to be less risky – however, fund managers do charge a fee for their services.
Employees could also look at other investment opportunities. This might involve property investments, as this is typically considered the safest and easiest way to invest in an asset. However, property investment is not without risk and being a landlord can take up a great deal of your time.
Investing in property is a risk like any other – house prices can rise and fall, and it is not always guaranteed that you will make a profit.
Help employees make the right decision for them
Every employee is different and there is no silver bullet when it comes to saving for retirement. If an employee isn’t sure about going down the traditional route of a company pension, it is important for them to understand that they may be shouldering additional risk with their alternative investments.
In any case, it is a great idea to diversify the investment as much as possible. Having various different sources of potential income can only be a positive in retirement.
It is important for SMEs to take these steps to help employees. Staff feeling like their employer is treating them right is a big factor in keeping morale high. Hearing negative stories about retiring colleagues won’t do any good for current employees.