Many employees don’t have adequate accessible savings but employers can take steps to help them.
Employers may feel they are familiar with the concept of ‘just managing’ employees, but the majority probably remain unaware of just how critical the problem has become as a wellness issue.
According to the Money Advice Service, 26% of working age adults have no ‘rainy day’ funds at all. Furthermore, only 42% have £500 or more on hand – meaning that many who purport to have savings might struggle to survive even a rainy week!
This is all in spite of the fact that products like ISAs that offer tax advantages have been around for years and that a huge amount of personal finance information is now readily available via the national press and authoritative websites.
Although those holding senior managerial positions may never have experienced it themselves, the arrival of an unexpected bill can lead to considerable short-term financial pressure for many employees. In some cases, it could even prove the trigger for years of spiralling debt.
All this will inevitably take its toll on the bottom line through presenteeism and absenteeism costs. Indeed, research by NEST shows that 40% of workers are saying that money worries have made them feel stressed over the last year, and 25% are saying that they have caused them to lose sleep.
The fact that UK employees cannot access their pension savings until age 55 does nothing to help those in such a predicament. Nevertheless, there are certain measures that employers can take to make life easier for them. In our view these should be regarded as an integral part of a corporate wellness programme.
Paying for a decent financial education programme delivered through workshops and seminars would be a good starting point. Chase de Vere is well placed to help in this respect because, unlike many of our competitors in the employee benefits space, we also have an independent financial adviser (IFA) arm.
There is also much to be said for providing a corporate ISA that runs alongside the company pension scheme to enable employees to build up a level of accessible emergency funds.
In our experience many employees don’t save because they don’t know where to go, and others simply just don’t get around to it. But actively communicating the benefits of a corporate ISA should help to reduce both problems.
Another step to consider is offering some sort of payroll-based loan system with attractive terms – although care must be taken not to be viewed as a commercial lender. Acting in conjunction with an external lender can help both reduce this risk and secure a low interest rate charge.
‘Resilience’ continues to be a major buzzword amongst those involved with health and wellness programmes, and all such initiatives can play a valuable role in increasing employees’ financial resilience.
We therefore expect them, together with other forms of innovation, to start becoming standard parts of employer wellness programmes in the years to come.
One particularly interesting approach, known as the ‘sidecar model’, started being trialled by NEST earlier this year. It involves a mechanism designed to create an optimal level of liquid savings whilst also maximising pension savings.
Contributions are at first paid into a combined account structure and are distributed between a pension scheme and an accessible savings account.
When the balance in the savings account reaches a predetermined ‘savings cap’, all contributions start going into the pension. But if employees withdraw funds from the accessible savings account, and the balance therefore reduces to below the savings cap, future contributions start being divided again.
It will be interesting to see how this trial works out and, for the time being, we don’t feel that employers should necessarily be looking to replicate any of the technology involved. But simply offering a corporate ISA alongside a pension and allowing employees to manage their own switches in savings levels will offer many of the same advantages.