Historically, household savings in the UK have been relatively low – at around just 9 per cent of household disposable income. Yet there have been many promising signs that the pandemic has positively changed people’s attitudes towards finances, driving a shift towards saving for the future – the savings ratio increased to nearly 26 per cent in the period April to July 2020.
So how can we support employees to maintain this attitude?
Our new research, which we undertook as part of our white paper entitled Pensions to be Proud of, found that half (50 per cent) of employees say the pandemic has made them determined to save more, and only one in 10 (11 per cent) feel like they can’t afford to put money aside at present. Furthermore, half of employees (50 per cent) say that the pandemic has made them determined to save more.
While we’re aware that the pandemic has undoubtedly been difficult financially for some, there are still many who have been able to save more than before, thanks to things like a lack of commute and of course hospitality being shut.
These trends are even clearer among the younger generation, often thought of as focusing more on the here and now. 18-24-year-old workers are nearly twice as likely to say they are thinking about their future finances (58 per cent) than just focusing on today (31 per cent). In fact, 44 per cent of this age group say they ‘saved more than ever’ since March 2020 – saving almost £2,800 on average.
However, despite these promising findings, there are still some people who are not thinking about the long term. At Cushon, we believe that employers should be asking themselves how they can support employees to maintain (or create) a positive attitude towards saving.
Why? A cornerstone of overall wellbeing is financial wellbeing and our previous research shows that there is a direct link between savings levels and mental health. Two out of three employees said that money worries affect their mental health and over 57 per cent of employees confirmed that financial worries negatively impact their performance at work.The bottom line is that financial worries affect the mental health of employees. And by supporting employees to become more financially resilient, employers will also benefit from a workforce that is more engaged and productive, more loyal and less stressed.
So how can you encourage these healthy saving habits?
Firstly, supporting employees in understanding finances – including long term savings, such as pensions – is crucial. Our research shows that 58 per cent agree that the information around their pension is too complex and full of jargon and over half of employees (52 per cent) would save more into their pension if they understood it better – a clear indication that jargon and complexity are a barrier to saving. Furthermore, 74 per cent think it’s their employers’ responsibility to shoulder some of the burden around education about such matters. So not only do people know that they do not understand their finances and financial language, they also believe that their employers need to be educating them within this space.
In addition, 45 per cent said they would be encouraged to save more into their pension if they knew it was being invested in a way that was good for the planet. And yet most don’t know that the average pension pot unwittingly finances an average of 23 tonnes of CO2 emissions – each year – through the businesses their pension invests in.
With this in mind, employers should be examining their workplace pensions to see if these are actively doing good or bad for the planet. If the later, they should be questioning their current pension provider about what they are doing to correct this and if necessary, looking to move to an alternative provider.
Finally, our research shows that six in 10 employees (62 per cent) say they would keep saving if they were auto enrolled into a workplace savings scheme, rising to 69 per cent if their employer was contributing too.
Similar to pensions prior to auto enrolment, it’s clear that inertia plays a big part in getting people saving. We believe that the Government should look to allow employers to automatically enrol employees into workplace saving schemes albeit with safeguards in place, such as education around saving versus debt repayment. We know from our research that the appetite is there among employees and, even without an employer contribution, the majority would remain in a scheme. In the meantime, employers should think about setting up workplace savings schemes as part of their benefits offering and even consider contributing.
It’s great to see that attitudes towards saving are slowly changing for the good, particularly amongst the young, but there’s plenty that can be done to support those who are not in this mindset. While Government reform in this space would take time, employers can take action sooner and support people to save for the future, and in turn improve their financial and mental health.