From the age of 18 to 68, the UK workforce is on a savings journey, but are employees really committed to the cause? Kavitha Sivasubramaniam looks at the key challenges savers face and how employers can help
Once upon a time people entered the workplace relatively debt-free then later got a mortgage, had children and gradually built up their financial commitments. However, things have changed and nowadays many people are starting work with the burden of debt already weighing heavily on their shoulders – whether it be from student loans or rental deposits.
Both employers and the employees themselves can feel the knock-on effects of those financial liabilities so early in someone’s career. But employers willing to do something about it and support their employees may even reap the benefits.
“They arrive into work with their first debt in place and their deposable income is almost nil from the outset. They don’t have time to get into the savings habit,” says Brian Hall, managing director of BHSF healthcare insurance and employee benefits provider.
If they are not careful, these people will see their debts build again and get trapped in a vicious cycle where they are struggling to break even, he explains. However, ideally they will come into work, progress and gain disposable income that will enable them to plan for the future.
“Key to long-term financial planning is starting as early as you can,” says Phil Blows, sales director at online pension adviser Wealth Wizards.
At the outset, many employees entering the workplace will be engaging with finances for the first time. While many will need help with basic budgeting, it will only be as they reach their 30s and 40s that they start to build up financial resilience.
Segmentation by age can only help so much, according to Paul Waters, head of guided outcomes at pensions and benefits consultancy Hymans Robertson.
“Each person’s savings perspective and personal requirements are far more nuanced than segmentation would allow,” he says. “Family, earnings levels and lifestyle ambition have a significant role to play.”
For that reason, Hymans Robertson only uses age as a broad proxy for segmentation and messaging. In summary, it looks at younger people/those at the start of career, those moving towards mid-age/mid-career, and older people/later career.
“What is important to one person is not the same for everyone and therefore trying to put people in boxes because of age or status is actually quite limiting,” says Heidi Allan, head of insights and engagement at financial benefits provider Neyber. “The key for each of us is for us to understand what makes us happy, what we want to achieve, and have a plan to get us there.”
THE ROOT OF THE PROBLEM
According to Neyber’s DNA of Financial Wellbeing 2017 survey, almost a quarter of employees have less than one month’s worth of savings.
In addition, research carried out by the Money and Mental Health Policy Institute earlier this year found that two-thirds of people in financial difficulty reported a sign of poor mental health as a result. In all cases, their mental health was affected in a way that had an impact on their ability to work, including reduced concentration and feeling as though they achieved less than normal.
“There is a perfect storm gathering that will impact employee savings,” explains Tim Perkins, director at financial education provider Nudge. “Inflation, personal debt and auto-enrolment contributions are all growing. Meanwhile, wage growth is pretty much flat. This means that to support employee savings and more generally wellbeing, employers are going to need to focus on supporting money management rather than just offering savings options.”
He says that facilitating new debt by way of payroll loans certainly isn’t the answer – employers want to give their people the context, clarity and confidence to better manage their money through education, which is free from product or provider bias.
HELP IS AT HAND
Once an employer has made the decision to play an active role in getting employees engaged with their savings, there are a number of initiatives they can implement.
Savings vehicles such as pensions, share schemes, debt management, employee assistance programmes and savings clubs can all help employees manage their savings. And, of course, there’s also childcare vouchers, season ticket loans, and a whole host of other benefits that can have an impact on everyday expenses.
“It is imperative that employers understand the needs of their staff before implementing any savings vehicles. The key is to identify what an employee’s saving priorities and attitudes to risk are,” advises Jonathan Watts-Lay, director of financial education provider WEALTH at work.
The various cohorts of the employee population will differ, and on the back of this, explains Watts-Lay, employers can then start to build out a benefits provision that will appeal to each demographic in the workforce.
“With so many options now available, the provision of financial education, guidance and advice in the workplace is essential for employees to understand what can be achieved through workplace saving,” Watts-Lay adds.
There are also a number of digital solutions on the market, including modellers and dashboards, to help engage savers with their finances. These present an opportunity to gain a single view of their finances, enabling them to see if their debt is increasing or decreasing, for example.
“Simple, engaging digital tools are very effective. Many digital solutions fail as they are too complex and expect too much of the individual, however tools which are data driven and can deliver simple personalised messaging without requiring the individual to enter much data are most successful,” says Waters. “At the other extreme, face to face advice to help answer specific personal needs works very well. Much of the rest in between is ineffectual noise.”
Blows agrees that digital solutions can provide individuals with specific answers or recommendations, which then drives engagement. He believes modellers and dashboards are great ways of highlighting the problem but people then need a quick simple way of solving it.
“Don’t drown people in information, they want a simple way to solve their problem. Get them informed to take action,” he advises. “Provide a combination of both education and advice and allow them to manage their finances easily from their phones. They should be able to follow a personal recommendation and then click a button to take immediate action. The key to driving positive change is quick and easy action points.”
Steve Herbert, head of benefits strategy at Jelf Employee Benefits, says there’s more to be done but that it is a work in progress, particularly around auto-enrolment. “Pension schemes are doing a lot more to engage the savers today, but what we need to do is get savings into an app that people want to use. Engagement is important but you’ve got to keep that engagement going somehow and we’re not quite there yet.”
Some employers are deterred by the costs involved in promoting engagement with savings, but these are largely minimal in the context of the overall reward budget. In many cases, the amount spent depends on the lengths the individual employer wants to go to.
“We have one client, Samsung, who matches employee contributions into a workplace ISA as an alternative to pension” says Tim Perkins, director at Nudge. “There is obviously a direct cost there, but the consideration and driver for most is ‘what are the cost implications of not helping employees to save?’”
“There is no cost barrier; cost is not the issue here,” says Hall. “Employers can do this for very little money, or even for free.”
Indeed, many companies offer free services such as website portals debt advice, resilience packages including mental health and wellbeing counselling, financial information and acute debt intervention. Many of these services can cost employers from as little as £2 per year per employee.
Herbert adds: “If their budget is limited, companies should look into what can be done with it. Signposting, for example, doesn’t cost any money. Just because some employers can’t do much, it doesn’t mean they can’t do anything.”
REAPING THE REWARDS
For employers, there are numerous benefits to helping employees engage with their savings. In the short-term, it’s about engagement – those who are happier with their finances are likely to be more engaged and productive at work. In the long term, it’s about workforce planning and helping employees retire when they want to and when the business expects them to.
“By offering savings, or a facility to help employees manage their debt and be in a position to save, employers have a unique opportunity to transform people’s financial health by helping them save,” says Asesh Sarkar, CEO of financial employee benefit provider SalaryFinance. “The benefits are a happier, more effective, more loyal and more financially liberated workforce.”
He adds that the risks of not doing so are higher attrition, lower moral, and reduced effectiveness.
So how will the workplace savings landscape change in the future?
“By 2020, financial resilience will become the number one concern for employers because it feeds into everything else,” predicts Hall.
He adds that it is very easy for people to get into debt nowadays, and that debt issues often reveal a mental health problem.
“The importance of helping employees be better with their money and supporting them change negative behaviours into more positive ones is going to be really important going forward,” says Allan. “Starting the conversation about financial worries and removing the stigma, much like we have done with mental wellbeing, will become more widely recognised as we continue to do work in this area.”