Helping making sure employees are financially prepared for whatever life may throw at you is at the heart of a new payroll saving offering to be rolled out by Hargreaves Lansdown. It’s a subject that Hargreaves head of workplace solutions Stephen Lefley has more experience of than most.
His five-and-a-half years at Hargreaves Lansdown have been punctured by a life-threatening skiing accident in the US that left him in hospital for two months, followed by many months more of rehabilitation – which have given him plenty of time to reflect on the importance of financial resilience for individuals and their families.
Life-changing incident
The accident happened on 2nd March 2020, just as Covid-19 was beginning to become known. He skied off a cliff on an icy bend of a piste, hit two fir trees and fell through branches to the mountainside. “I thought I was going to die of hypothermia because there was no one else around, despite how much I shouted, because I’ve gone off right at the edge of the cliff,” he said.
Lefley suffered 13 broken bones, of which two were in his back, and punctured a lung. Helicoptered off the mountain and flown in a private jet back to the UK over the North Pole, his insurance bill came to $2m.
He that caught Covid while in hospital, along with three other patients on his ward who did not survive, a raft of trauma that took him some time to come to terms with.
“When I was laid in hospital, paralysed from the waist downwards, which I’m not now, one of the first things I could think about, when I was able to think, was how I might not ever be able to work again. How are the family going to live without my income? What am I going to do?
“All those things cross your mind and then you realise just how important all of your employee benefit package and your historical savings are and how sensible you’ve been historically with those savings and how you apportion them. I needed 100 per cent of everything that was in my head to be focused on getting better. And it really helped. I can’t begin to imagine what it must be like for people who can’t do that because they’re worried about everything else other than their own body,” he says.
Personal parallels
Financial wellbeing and the importance of being financially prepared for life’s knocks is something Lefley is keen to press through Hargreaves Lansdown’s workplace proposition.
He says: “Employees are starting to expect employers to facilitate more than just a pension plan for them. We all know how much employees trust their employer to guide them to appropriate financial places, and it is an inevitable trend that wider savings via the workplace will become more prevalent.
“It isn’t just about workplace pensions anymore. It can’t be. How does a workplace pension make you financially resilient in the short term? It’s jam tomorrow.”
Lefley points out the particular hurdles that apply to wider savings that do not apply to workplace pensions under auto-enrolment rules. “We talk about increasing financial resilience via the workplace, but how do you practically do it? Because an employer isn’t legally able to pass member data to wider savings providers. For wider savings, even if you’ve got pension scheme, you’re not entitled to have employee data for non-joiners who might want to join a wider savings mechanism,” he says.
“The innovation that we’ve been piloting for three or four years now and are now rolling out is a much more streamlined, user-friendly capability to enable employers to offer their employees the ability to join a wider savings vehicle and to divert employer spend into those products,” says Lefley.
Flexible benefit
Under the new facility, which launches in the summer under the name ‘FlexInvest’, the employee will be able to see exactly what the employer is spending on them and they will be able to divide up that employer spend into the products they want.
“An individual may decide that all of the employer spend is best allocated to pensions because they’ve got Isas and share accounts – they may have their shorter and medium-term needs catered for elsewhere. On the other hand, they may choose where the employer allows it to divert some of that employer spend into those shorter-term products. We do it for our own staff at Hargreaves Lansdown. And personally, as a member of some of those wider savings options, I love the fact that I’m saving before I’m even able to spend. When any employee receives their net pay once a month, their savings are already catered for. It’s often the last thing that people look to adjust downwards when times are hard and income is squeezed. But of course they can if they if they wish to do so,” he says.
The service will have a traditional stocks and shares Isa and general investment account from day one but won’t have Lifetime Isa at the outset.
So is the Lifetime Isa pencilled in to be added at a later date, given the attractiveness to would-be homeowners of saving through it?
“We’ve got the product, just not payroll enabled right now. It’s not an immediate priority because those people who qualify to save in Lifetime Isas can quite easily do so via the single view they have on app or on the web,” says Lefley.
Simple solution
Part of the logic for the new launch, which is due to take place at some point in the summer, is operational, for the member, the employer and for Hargreaves Lansdown itself. “Employers can’t just voluntarily give us the potential membership data for wider savings. We have to collect that data. And then that that forms separate member uploads and contribution files. So we’ve got to do this with scale and efficiency in mind.”
Demand for cash is clearly high amongst workers. Lefley says 28 per cent of Hargreaves Lansdown pension investors access their pension in one way or another at age 55.
While some providers report opt-outs in response to the cost-of-living crisis, Hargreaves Lansdown’s more well-heeled customers appear to be sticking with saving. Lefley reports that 50 to 52 per cent of people are actually contributing above the scheme minimums.
Metrics such as this reflect the extent to which the scheme is engaging with its members – contributions are one of seven metrics captured by Hargreaves Lansdown – the others including those making investment choices outside of the default fund, “which may or may not be a good thing” says Lefley, and those consolidating products from other providers. Currently 22 per cent of Hargreaves Lansdown’s workplace pension population have proactively made a transfer.
But despite Hargreaves Lansdown’s strong footprint in the retail sector, and its undeniable success in engaging individuals with their investments, Lefley does not see the arrival of pensions dashboards, whenever that may be, as the Big Bang for the industry that some predict.
“The dashboards are going to be hugely useful for all of the obvious reasons. The amount of money in lost pensions is vast. So the dashboard is going to help,” he says. “And it can’t not help consolidation, but I don’t think it will help considerably. I think the impact will be marginal because people still have to take action. And of course, as we well know, getting people to engage with pensions and savings plans is far easier said than done, let alone actually then taking the extra steps to see what they’ve got and then move it.”
Other engagement metrics include website logins – currently 71 per cent each year, and death benefit nominations, stubbornly low at around 26 per cent, despite the massive consequences that can flow from a failure to address this.
Hargreaves Lansdown changed its workplace default in April 2022 and has seen an increase in the number of members staying invested in it. But it is not looking to add illiquids such as infrastructure to it any time soon, with Lefley stating that price is the key reason why.
“The price of the default fund offering is absolutely critical. If you start to incorporate those kind of assets into your default fund, then the price will only go one way and it isn’t down, and a result of that, you would lose mandates.
“You lose mandates over a basis point, let alone over a default fund which includes real estate. It’s hard enough, including ESG. So our default fund is probably one of the more expensive in the marketplace at 10 basis points. Some default funds have a far more vanilla and can be 2 basis points or 4 basis points,” he says.
Retirement transition
Hargreaves Lansdown is a provider that wants to move the barrier between advice and guidance to allow firms to say more to retirees and guide them towards what they think are more suitable arrangements.
“we’re heavily engaged with the FCA on exactly this because [the current situation] really isn’t helpful. We’ve got a very comprehensive help desk in Bristol. We have 1.8 million customers who can phone us and speak to a human being. These aren’t just quick conversations. The time that we’re on the telephone to people is actually increasing rather than decreasing, as people’s concerns get higher and their financials set up gets more complex. So we are continually in dialogue with the FCA, about pushing the boundaries, for all the right reasons, of what we’re allowed to say, which still constitute guidance because it really isn’t helpful when those people call us up and we tell them what we’re not allowed to say.”
High earner woe
Hargreaves Lansdown has just publishing its third data set from its Financial Resilience Barometer, compiled in association with Oxford Economics, which, says Lefley, shows some surprising concerns over the challenges faced by high earners.
“A third of the people in the UK don’t have three months’ worth of essential spend saved up for. And that includes 1 in 10 of the highest earning individuals. That’s probably not too much of a surprise. But a stat that really struck a chord with me was the top 20 per cent of earners take on the most debt. And they are more than twice as likely to have a variable rate debt than those that are on a lower income. That must hurt rightnow,” says Lefley.
This financial resilience challenge is key to the logic for the launch of FlexInvest.
Future developments
Hargreaves Lansdown is in the midst of a £175m business revamp across three areas: to enhance its digital capability, to enhance its overall service and efficiency capability and to enhance businesses growth. “There’s a lot more going across the bigger picture with cloud-based resources and artificial intelligence which will benefit our end user experiences,” says Lefley.