January can often seem like the longest month. It’s dark and cold and the only thing to look forward to is…February. Many employees will have been paid a little early because of the festive break, meaning that it is also the month when money – already in short supply after the expense of Christmas – has to go further than ever.
For some employees, that financial stretch will be a temporary state of affairs. But for employees who are already struggling financially, the extra end-of-year costs and longer break between pay dates can aggravate existing money problems.
The need to help employees take control of their finances has never been greater. Wage increases are not keeping pace with inflation, meaning that day-to-day budgeting is becoming more difficult for many while personal debt levels are also rising. Consumer credit has increased by 19% over the last five years, according to Bank of England statistics*, and the Office for Budget Responsibility estimates that unsecured household debt will reach 47% of income by 2021.
Debt and fluctuating work patterns make financial planning challenging, but changes to pension arrangements mean that individuals must also now take more responsibility for planning their own retirement. Most employers have moved away from defined benefit pensions, where an individual’s income for the whole of his or her retirement was related to their final salary and increased over time in line with inflation. For the most part, these have been replaced with defined contribution pension schemes, which build a pot of money for an employee who must then decide how to spend or invest it to support them for the rest of their life.
Aon’s DC Scheme Survey 2017 showed that there is still a lot of work to do in supporting employees with their retirement plans. Over half of our respondents did not know how much their scheme members were likely to receive when they retire. Only 14% of schemes said they offered access to the recently introduced Pensions Advice Allowance, which is designed to help individuals get tax-free financial advice as they approach retirement.
Poor financial wellbeing is not restricted to the young or to those approaching retirement. Nor is it specific to lower paid workers. Research by the Chartered Institute of Personnel and Development in early 2017 showed that 20% of those earning between £45,000 and £59,999 said that financial concerns had affected their ability to do their job**.
Given the pressure on employees’ day-to-day finances and the need for individuals to plan how to fund their own retirement, it is no surprise that many people feel out of control financially. Longer term, that can affect an individual’s mental and physical health as well.
That means employers should be concerned about their employees’ financial wellbeing, too. If individuals are so worried about their finances that they are unable to perform properly at work, that will have knock-on effects on sickness absence and productivity.
However, employers are also very well placed to help support staff with their finances. Employees already associate work with money, and the majority of employees say that they trust communications from their employer about pensions and other benefits***.
That help does not have to be expensive or time-consuming, but it does need to be appropriate to the workforce and delivered in a way that means employees can get the help they need when they need it, and take back control of their finances. Some simple steps include:
Understand employees’ needs: employers might already be aware that some of the workforce are struggling. That could be backed up with anonymised feedback from employee assistance programmes, anecdotal information from line managers or through more formal means such as staff surveys. You may know that there are specific challenges that need to be addressed as well, such as April’s increase in the minimum auto-enrolment pension contributions, or helping graduates with student debt.
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Build support: This could be as simple as sign-posting help from third parties, such as the Money Advice Service, through to introducing tools like Aon’s My Money service that enables employees to see all of their finances together in one place or providing face-to-face financial advice at appropriate points in employees’ careers. Getting line managers involved, so that staff feel they can talk to someone if they are struggling financially, is also important.
Measure impact: It is vital to be able to assess the effect of any financial wellbeing activity that you carry out. This can help to make the case for further investment and help the business to understand that it really is having a positive impact on employees’ wellbeing.
No organisation is too big or too small to help employees with their financial wellbeing – and even if budgets are limited, there are simple, cost-effective first steps that employers can take to help. Now is the time to make 2018 the year that employees take more control of their finances, and employers can look forward to a more engaged, productive workforce as a result.
For a copy of Aon’s DC Scheme Survey 2017 visit www.aonhewitt.co.uk/dcpensions
*** https://www.closebrothersam.com/docs/default-source/fes/close-brothers-lifetime-savings-challenge-whitepaper.pdf (Close Brothers and PLSA) p.43