Financial wellbeing is the latest aspect of employees’ health to come under the spotlight, with more and more organisations looking to improve their workforces’ money skills. But, with finances a very personal matter, a one-size-fits- all approach is not an option.
The variety of employees’ financial situations can present a challenge. “Financial wellbeing can be interpreted in many different ways,” says Jonathan Watts-Lay, director of Wealth at Work. “Essentially though, it’s about helping employees to understand the basics of money management from debt to taxation and pensions.”
Aegon takes its definition a step further, with its pension director, Steven Cameron, pointing to four characteristics that the US Consumer Financial Protection Bureau developed to indicate financial wellbeing. “To achieve financial wellbeing, an employee must have control over their finances; have the capacity to absorb a financial shock; be on track to meet their financial goals; and be able to make choices,” he explains. “Any financial wellbeing programme should address these areas.”
Supporting employees in this way has plenty of benefits. As well as helping them to improve their financial situation and encouraging greater engagement with the employee benefits package, a financial wellbeing programme can improve other aspects of employee and business health.
Aon Employee Benefits head of pension consulting Martin Parish says there’s a close link between an individual’s financial circumstances and their mental health and wellbeing. “Financial worries are one of the main reasons people call employee assistance programmes,” he explains. “Money issues can also affect productivity and push up absence.”
This is supported by research conducted by Aegon and the Centre for Economics and Business Research. It found that poor financial wellbeing costs UK employers £1.56bn a year through absenteeism and presenteeism, with the private sector alone racking up over 4.2 million days of absence as more than 500,000 workers were forced to take time off last year.
Worryingly, it also found that 30 per cent of employees would describe themselves as ‘just getting by’ financially. “Improving financial wellbeing is good for individuals but it also benefits employers and the UK generally,” adds Cameron. “Employers are well-placed to help their workforces.”
Designing a programme
Understanding the workforce and its financial needs is an important first step.
Segmenting the workforce can work but, as John Dean, executive director, Howden Employee Benefits & Wellbeing explains, it’s important not to make assumptions: “Don’t assume that all your millennials will want debt management and the high earners will need information on pensions and investments,” he says. “Even if someone’s very wealthy, they might have some expensive habits. Similarly, low-paid employees in a manufacturing company might not have debt issues as they’re more likely to rent and have relatively stable outgoings.”
However, some groups do need particular advice. For instance, first jobbers might benefit from a financial basics workshop, running through everything from what’s on a payslip and tax to the benefits package and how pensions work.
Likewise, running a session on accessing pension benefits can work well for employees in their fifties plus.
A bit of creativity also helps. Smarterly head of proposition Steve Watson recommends making the programme event rather than product driven. “A library full of information is useless but a selection of literature that is all housed under an event such as home purchase or retirement is priceless,” he explains.
When it comes to putting together a financial wellbeing programme, Parish says there are no ready- made solutions. “Employers will usually have many of the components with the benefits they already offer,” he explains. “As an example, most workplace pensions come with plenty of literature and interactive tools that can help to bring retirement savings to life.”
Technology means that there’s a range of tools available to support a financial wellbeing programme. Aegon even offers a self-assessment tool to help employees understand their financial wellbeing. This gives them a score to show them how they compare to their peers, and where their plans might need improvement.
By using benefits data, these tools can be targeted to employees who might need them. “Send the pensions tool to employees who haven’t used it or taken out a pension,” explains Parish. “A financial wellbeing programme needs to take employees on a journey to inform, educate and transact. When employees understand the benefits a pension offers, they’re much more likely to take one out.”
Piggybacking a programme on benefit providers’ content can also be a smart move for employers. Cameron says it can be beneficial for an employer to be one stage removed from the programme, at least initially. “Talk of financial wellbeing can alienate employees and lead to calls for a pay rise if it’s not positioned correctly,” he adds. “Putting communications out through the adviser or product provider can prevent this.”
When it comes to encouraging more financial wellbeing, it’s worth incorporating some short- term rewards into a programme. These quick wins can encourage employees to engage with more of the content. As an example, Watts-Lay recommends helping employees save money on day-to- day financial essentials such as utilities, motor insurance and credit cards.
“Some financial experts focus on money making tips such as saving hundreds of pounds a year by cutting back on the morning coffee,” he explains. “It’s great but it requires a lifestyle change, which can be hard to stick to. Finding cheaper deals on existing expenditure is a much less painful way for employees to save money.”
It’s also prudent to be prepared for employees wanting to take their financial wellbeing further. Cameron says that as well as directing employees to the Money and Pensions Service, employers should also offer access to more tailored financial advice where required, with benefits consultants in a good position to offer this service.
Where financial advice is an option, Cameron recommends flagging the £500 income tax exemption. This can be used for pensions advice but also any general financial and tax issues relating to pensions. “It’s not used as much as it should be,” he adds. “Although £500 doesn’t go far, with the financial wellbeing programme covering the basics, it should give employees good value.”
DEBT MANAGEMENT ANDPAYROLL LENDING
Helping employees avoid or break out of a vicious cycle of debt is a key objective for many employers. But with these programmes often offered by payroll loan companies, advisers must ensure employees are encouraged to take on less rather than more debt.
Martin Parish, head of pension consulting at Aon Employee Benefits, recommends caution when
considering debt management. “If it enables employees to increase debt, you have to ask whether this was the intention,” he says. “Debt management education can be delivered without the temptation of a loan.”
While it may seem in conflict with the debt management advice, giving access to an affordable loan can be the escape route that some employees need. “Most of the loans we arrange for employees are for debt consolidation purposes,” explains David Walker, head of commercial at Neyber. “Employees will see a reduction in the amount they have to pay back and the length of time it takes.”
With Neyber, loan contracts are between itself and the employee so there are no issues if either party stops working for the employer.
Lending to employees to help them beat debt is a strategy that John Dean, managing director of Punter Southall Health & Protection, says can work well. “We’ve lent money to our employees to help them clear debt,” he says. “As long as you choose a reliable supplier and it comeswith education then it has its place. But it is one of those areas where some employers do, and others never will.”