In 2015, the Consumer Financial Protection Bureau (CFPB) published a report focusing on financial wellbeing defined as “a state of being wherein you:
- Have control over day-to-day, month-to-month finances;
- Have the capacity to absorb a financial shock;
- Are on track to meet your financial goals; and
- Have the financial freedom to make the choices that allow you to enjoy life.
Therefore, as an employer how can you help educate employees about their options, reduce the stress levels of your employees and define your overall duty to your workforce’s financial wellness education?
Speaking exclusively with Steven Leigh a Senior Consultant at Aon, we found out what he believes are common misconceptions when it comes to devising financial wellness programmes, why the middle-aged demographic get overlooked and how financial wellbeing can be cost-effective. We question, what are the changes that need to be implemented now to ensure real innovation? And how can employers change the way people plan for their futures going forward?
Recently Aon conducted the Aon Financial Wellbeing and DC Pension Member Survey 2018, this particular report was called “Living the Dream?”
Can you give me an overview of the findings from the survey you conducted?
Our research covered employee attitudes and experiences in several areas. We wanted to get an understanding about people’s current financial wellbeing, their plans for the future which included their retirement aspirations, and also how they are influenced by their employer.
A lot of themes emerged across the different topics. For instance, in the majority we found that people were positive about their financial situation. Over half rated their financial situation as ‘good’ and three-quarters of respondents said that they made regular savings each month.
Conversely, we did find that reality does not always match perception for some individuals and a lot of people do not give enough thought to their own financial situation or retirement planning. Around 35% said they find dealing with money quite stressful and overwhelming. This rose to 50% when analysing younger employees during the early part of their career.
There also seemed to be a disconnect between individual optimism, personal financial wellbeing and the ability to be able to plan for your own future.
Were there any unusual findings throughout the survey?
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There were several surprises, which demonstrated that we cannot rely on typical assumptions.
A couple of things that stood out were that less than a third of the people who took part in the survey expected to stop working at retirement age. A lot more people now expect to start transitioning to part-time work, and 15% of people said they expected to go on working forever. This this was not just representative of those on a low income but was true across the board.
How many people responded to the survey?
We received just over 1000 responses from people based in the UK.
What do you think is being overlooked when it comes to financial wellbeing?
This is something that differs among various organisations. It often depends on the expertise or the background of those involved and their own personal views on financial wellbeing programmes.
It can be common for companies to make assumptions about what employees need based on stereotypes. For instance; younger employees might have debt issues and older employees might need help with their pensions – but the reality can be quite different. For example, we found the proportion of those with unpaid credit card debts at the end of each month was 35% across all age demographics -proving it’s not just the younger workers who may have problem debt.
“One of the most common pitfalls is to assume because you’ve communicated something, that everyone will know it.”
What do you think is missing from current financial wellness strategies?
What we often see is that companies jump straight to looking at solutions before thinking about what they are trying to achieve for their workforce. They often need to gain more understanding to be able to set reachable objectives.
On that basis, the sensible approach is to start by getting a good understanding of the workforce, thinking about the quantitative and the qualitative side of things. Look at the demographics, salaries, pension saving data as well as getting employees to give input through surveys and focus groups therefore understanding the real individual needs, the help people are looking for and where they could be struggling.
Once you have that understanding, you can identify any areas of financial distress within the business in order to help you put together your overall strategy. It is about determining what you are setting out to achieve while also recognising that you need to know your people.
Do you think there is a sense that the middle-aged demographic gets overlooked when considering their financial wellness?
The mid-career can often get overlooked. There’s an assumption that these people are financially stable, and in control of their retirement planning. But, again the reality is quite different. In our research the mid-career group were the most likely to have some level of debt and the least likely to describe their own financial standing as ‘good’.
Also, from a pensions perspective the research showed that they did not necessarily have a guaranteed defined benefit pension when they retire. They might have gone into a defined contribution plan quite early in the evolution of these arrangements, when the communications and support were far less effective and not as well designed as now. So, yes, I think that those in mid-career are often a slightly forgotten generation in terms of financial wellness and retirement planning.
“One key area that stood out during this research was that younger employees are far more open to receive support than any other demographic. In fact, four out of five of the younger demographic said they wanted help from their employer.”
How do you think employers can ensure that employees are well informed about their financial options?
The unanimous feedback across the board was the need for one-to-one conversations across all demographics and regions.
People like being able to talk challenges through and this does not always need to be with an external person. In the focus groups that we have been running in conjunction with the survey, the most common feedback received is how useful it is to have peer-to-peer conversations within the organisation.
For example, perhaps one of the younger workers could talk to someone coming up to retirement, learning from the successes and challenges of their career and what they did in terms of their financial planning? We’ve run these focus groups on behalf of some of our corporate clients to help them gain a better understanding of their workforce.
Do you think employers have a duty to guide employees through their financial options spanning their entire career?
I think they do. One key area that stood out during this research was that younger employees are far more open to receive support than any other demographic. In fact, four out of five of the younger demographic said they wanted help from their employer with financial matters, compared with the other groups, where three out of five wanted support.
We have already discussed the challenges faced by the mid-career employees, trying to balance the conflicting demands on their time and their finances. You also have those who are approaching retirement but who have the pension freedom changes to consider. They have more financial decisions to make at retirement than they have ever had before.
In conclusion, yes, I do think there is a need for employers to guide employees through all different stages of their career.
What might be some pitfalls in your opinion?
One of the most common pitfalls is to assume because you’ve communicated something, that everyone will know it.
People might not have opened the envelope or read the email. Individuals have their own way of understanding their own financial situation in terms of what is being offered by the employer.
When we have spoken to employees, we’ve found the extremes of some that have no understanding about saving into pensions or life insurance, to others who have very sophisticated views about how they are going to manage their investments. Therefore that ‘one size fits all’ approach really isn’t appropriate. Do not just assume that because you have told someone something that they’ve entirely taken it in.
Companies often might see value in turning to external sources to support their financial wellbeing offerings because the resource and knowledge is not always available within their own organisation.
People do not want to risk getting it wrong due to their own lack of knowledge. Therefore, if external support is brought in they are responsible for communicating this information to the relevant people and getting it right.
What is the most common misconception or mistakes employers make when it comes to pension planning?
Employers underestimate how much employees rely on them for pension planning. Most employees do fall into the ‘default option’ that’ is not just about where their pension plan is invested, but also about how much to save towards their retirement in the first place.
This is what companies need to be careful about. For example, s instead of defaulting people at the lowest contribution rate and assuming that if they can afford to pay more and that they will choose to do so. What about if we start to default employees in at the highest contribution rate and if they want to, they can choose to pay less? That way they are more likely to end up with a better pension because most people will not take any action.
To emphasise the point again, we need to stop making assumptions and understand how much people rely on their employer.
How can businesses make financial wellbeing cost effective?
There’s plenty of evidence that shows not just financial wellbeing, but wellbeing overall can make a real difference.
The emphasis on cost effectiveness is not so focused on improved financial health, but more directed at reducing financial stress which really has a beneficial impact on productivity, on fewer days being lost to absenteeism and on employees having greater focus because they aren’t being distracted by financial issues. This increases their own productivity.
You’ve also got older workers having to work for much longer than anticipated, which is starting to become a reality. In some industries the workforce and succession planning is becoming an issue because older employees can’t afford to retire.
As stated earlier, some employees anticipate working for the rest of their life – which is a daunting prospect. Those who do plan to retire may do at a later stage in their life, with the state pension age rising. This is may not be cost effective for businesses and plans need to be put in place.
It’s really key to set objectives from the start and then decide what measures are actually appropriate. It might be measuring absenteeism and evaluating whether wellbeing programmes are making a difference, measuring engagement or understanding what age people are retiring from the business. Have a target to aim for and then you can measure the effectiveness (or not), of that target which will then show whether it’s being cost effective for the business.
“I think shareholders and analysts will begin to take note and invest in companies which have active wellbeing programmes in place, because it is going to make a significant difference to these companies.”
What would you like to see happen in the future?
I would like to see more employers starting to recognise that they have a corporate responsibility for the financial wellbeing of employees.
I think shareholders and analysts will begin to take note and invest in companies that have an active wellbeing programme in place (beyond only financial wellbeing). I believe these lead to a more stable and productive workforce and that will make a significant difference to the success of these companies.
To request a copy of Aon’s latest employee research into Financial Wellbeing and DC Pensions, visit aon.com/dcpensionsuk.