Not paying for financial advice for employees may prove a false economy for many employers.
American humourist Josh Billings observed that “Advice is like castor oil, easy enough to give but dreadful uneasy to take.” But within UK companies the main barriers seem to lie in the willingness to give rather than to receive.
Although most employers purport to believe in the value of financial advice, they have never been too good at putting their money where their mouth is. And, worryingly, they have been getting significantly worse over the past year.
Recent research conducted by Chase de Vere, in conjunction with independent research company Lightbulb, consisted of around 10,000 phone calls to UK employers and in-depth interviews with senior HR decision makers in 300 randomly selected businesses.
It found that 83% of employers said that financial advice is something their employees would value and benefit from. 56% even said they planned to do more to help employees make more informed choices regarding their retirement.
However, only 33% said their company would have the appetite to pay for financial advice for their employees – compared to 42% last year. Additionally, only 27% anticipated including a cost for financial advice for their employees in their 2018/19 budgets – compared to 36% last year.
This is certainly disappointing because employers are well placed to help their employees in this respect. It could also constitute a false economy in many cases, and employers should be wary of allowing short-term economic fears over Brexit cloud their judgement on an issue that could well produce benefits for the bottom line in the longer term.
Those employers who don’t help by paying for advice programmes may, over time, be faced with an ageing workforce that cannot afford to retire and may consequently suffer from lower productivity and succession planning issues. They could find themselves losing crucial younger talent to competitors that provide more opportunity for advancement.
Contrary to popular belief, financial advice programmes don’t have to cost the earth. Chase de Vere can tailor a programme to suit your exact requirements and budget but, as a broad example, four days of group presentations and two days of optional follow-up one-to-one guidance surgeries may cost £5,700.
There is no doubt that, if you get the business case right, such an outlay can actually save you money. It should therefore be viewed more as an investment than as an expense.
For example, with pension auto-enrolment, lack of engagement invariably results in low levels of employees paying more than the mandatory minimum contributions. But the presence of a decent financial advice programme will almost certainly boost these contribution levels as a result of employees gaining a better understanding of their likely retirement outcomes and of the “real cost” of pension contributions.
Investing in financial advice can also enhance loyalty and improve employees’ long-term financial wellbeing. According to the Chartered Institute of Personnel and Development (CIPD), a quarter of people are now suffering with money problems so significant that it affects their ability to do their job.
All this helps to reduce cost for the business, and therefore ultimately increases revenue. Furthermore, if a pension scheme is set up on a salary exchange basis – which will drive additional employer NI savings – it is quite possible that the savings realised will be more than sufficient to fund the advice programme.
Take, for example, an employer with a 200 strong workforce on an average salary of £27,000 and with a scheme opt-out rate of 10%. If the employer contribution is 3% and the average employee contribution is 3.5%, using salary exchange will result in employer NI savings of £23,474 per annum.
Any employer whose pension scheme is not set up on a salary exchange basis should seriously consider why not.
Whilst there were once fears that the Chancellor could clamp down on the practice, these have been proved groundless for employer pension contributions and employer-provided pensions advice – which were specifically exempted from salary exchange tax and NI changes implemented in April 2017.