Soaring fuel prices, rising inflation, increased taxes and the economic impact of the Russia/Ukraine conflict are all taking their toll on the financial wellbeing of UK employees and high middle-earners are feeling the pinch as much as anyone.
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The industry needs to work to help break the taboo around financial wellbeing, to support employees in moving to a positive money mindset.
That was one of the conclusions drawn from a recent Corporate Adviser round table on financial wellbeing.
Speaking at the event, LCP senior consultant and head of financial wellbeing Heidi Allan highlighted the surprising impact the runaway cost-of-living crisis uncertainty has had on high middle-income earners, earning between £70,000 and £100,000 a year.
She cited research the consultancy had done amongst 10,000 UK employees and 500 organisations to illustrate the synergies and disconnects between different groups. It found that high-middle-income earners are most at risk of financial ruin.
Allan said: “The sweet spot between £70,000 and £100,000 earners are by far the most vulnerable, most stressed and in-crisis population. They’ve lost child benefit for those who’ve got school-aged children and they’ve got older children returning home during the lockdown and pandemic.”
The financial demands on this demographic are so severe that some are considering changing employment, while others are turning to loan sharks. The percentage of employees in this group who had borrowed to cover basic needs has climbed to 60 per cent, according to the LCP survey. The highest levels of borrowing are from individuals who are younger and in the middle of their careers, she said.
Debt stigma
Allan added: “They’re likely to be in management roles as well and the perceived stigma around putting their hand up to say “I need help, I need support” is stopping them from asking for help. They’re looking to change jobs. They’re looking to even change industries because they need more money and they need better benefits.”
Buck partner Mark Pemberthy agreed that talking about money issues in the workplace still seems to be a taboo that needs to be addressed. He said: “The education piece is definitely missing – the normalisation of talking about money. There has been huge progress around mental health and there does seem to be a much safer environment for people to talk about not being okay from a mental perspective. But I don’t think we’re anywhere near that from a monetary point of view.”
Pemberthy said the problem had been very well expressed in a report done by Barclays in 2014, Financial Wellbeing: The Last Taboo in the Workplace?, a piece of work that Allan had been a contributor to during her time at the bank. The report highlighted the shame and stress many employees faced when talking about their finances and the negative effect it had on their health and broader wellbeing.
Delegates agreed tackling this taboo could be a key to starting to unlock a host of stored-up financial problems.
Steady saving
While certain groups are reeling from rising costs, there are still many for whom finances remain manageable. Aegon UK managing director Linda Whorlow said the provider’s research showed members of its schemes are more concerned about the impact of the global economic challenges on broader society and their longer-term futures, although she said their members may be more financially stable than is typical across the entirety of the nation’s workforce.
“There is definitely a cohort which is rising, who are concerned about paying bills. But for most it’s a combination of making sure that we can help with budgets, debt management and tools. Let’s not forget that for the bulk of those members, it’s more about having some reassurance about keeping that long term plan and the importance of keeping pension contributions or savings going.”
Whorlow added that Aegon’s DC pension scheme member insights showed that only 13 per cent have a have a plan for the future. Helping members shift their mindset towards setting a plan and towards taking a more financially resilient approach to dealing with their finances would support boost financial wellbeing at this difficult time, she added.
Hyman Robertson partner Michael Ambery added that supporting those driven into a negative state of mind by financial pressure was a key responsibility of the industry. He said: “When the inflationary and financial pressures kick in, that’s where some people can have personal issues. We need to focus a little bit on the emotional points as well.”
Financial wellbeing is more than educating on debt management, said delegates, with a first, very cost effective step being a focus on using the tools that are already available to engage with employees.
Money relationship
Whorlow said: “The definition I love is that it’s about the relationship with money, and that is a big focus for us. Being able to visualise goals that don’t need to be towards retirement and that could be towards the next big event in their lives or just meeting the cost of living, for example. But that sort of relationship with money, mindset, encouragement, education, support – creating a plan and a budget, is the first step along that path to education.”
Focusing on education, communication, guidance and coaching can support employees, and only a small number of people would require actual advice at the end of the process argued Allan.
She said: “I do think there is a blurring of the lines between what’s information and education, what guidance and coaching and what’s advice. If we get the education, guidance and coaching right, the pool of people at the end that need true advice would be smaller, more manageable and will take away some of that ambiguity on that journey.”
Aegon regulatory strategy director Stephen Cameron noted that boosting engagement could perhaps provide an opportunity to look at pensions in the context of other financial concerns, through a more personalised approach.
He stated: “We’ve been working for the last few years on how we could perhaps build a case for more personalised guidance to somewhere between the education, which we’ve been talking
about and financial advice. At the moment, the definition of advice makes it quite
tricky that if you want to give any kind of strong nudge or any kind of steer, it’s very easy to cross the line and to that being deemed advice.”
Personal touch
Cameron highlighted that more personalised guidance could support making suitable contributions to years of retirement savings, considering the advantages of liquid against illiquid savings, as well as accessible versus inaccessible savings, and deciding where to place your money. He stated that once pension dashboards are launched, the potential for engaging individuals will increase.
He added: “We have been making some progress and persuading the FCA that this seems like it’s a way forward, but it’s quite a complex part of lobbying because as you all know, it’s the FCA that monitors and supervises the advice boundary, but it’s the Treasury that sets the definition of advice. So there’s more than one stakeholder that we need to persuade that it would be safe and it wouldn’t create risks of bad actors coming in and abusing this situation to allow more personalised guidance.”
Rainy day savings
According to Barnett Waddingham partner and senior client relationship manager Andy Parker, another area of attention for the industry to consider that could help employees’ financial wellbeing is the adoption of an auto-enrolment style savings system.
Parker suggested: “We don’t have to try and engage people, we could do it for them. I’m very much on the lookout for ways that maybe you can do things for people with regards to having a plan. Most employees in pension schemes don’t even know how much they’re paying in.”
Allan agreed with the idea and added: “I do think that an auto-enrolment style savings jar type concept will be the next big thing to come out. There are huge benefits to being able to do that which gives a bit of choice and flexibility. It’s a great way of engaging younger people who maybe haven’t got that same future financial retirement savings kind of ethos.”
Pemberthy said: “There’s no doubt that if people have a rainy day fund that is there, that they haven’t had to necessarily go out of their way to accumulate, it will solve a lot of the short term pressures that people find. It gives a bit of a buffer and so I think making that automatic to me feels like a fantastic way forward. We’re so fixated on retirement and saving and it shouldn’t be the be-all and end-all. We need a more balanced approach to good saving.”
Punter Southall partner Alan Morahan also agreed but pointed out the problem faced by low-income employees and the benefits of boosting employer contributions for that group in particular. He recommended focusing on persuading employers to go above and beyond the minimum requirements for auto-enrolment.
“The concept of sidecar savings or accessible savings alongside pensions auto-enrolment is definitely something that should be debated going forward. We’ve also got other things like the people with multiple low paid jobs who are currently excluded.”
But according to Morahan, there is still not enough evidence of employers actually doing anything progressive to change employee behaviours.
He said: “Unless behaviours are changed, then none of this can happen. I think we’re very good at putting solutions in place but the hard bit is then how do you get people to use those solutions to get the outcomes that you want to achieve.”