Employers are moving away from traditional one-size-fits-all benefits packages to embrace more flexibility in their benefit design. We’re hearing employers say they need to provide modern and competitive benefits to cater for different points in employees’ lives and their wide range of priorities.
Employees expect more from their employer than ever before and offering personalised benefits is an important attraction and retention tool for employers competing in a shrinking pool of talent.
We’re also hearing employers say that benefits can’t just be about pensions anymore. Pensions are designed to be long-term investment vehicles with money not usually accessible until age 55 (57 from 2028), but building financial resilience isn’t just about the long-term. Employers need to think carefully about their benefit design to help employees build their wider financial resilience in the short and medium term too. If employees are distracted by short-term financial pressures, made more pressing by the current cost-of-living environment, will they be listening to the important pension narrative?
The latest HL Opinium Survey* reveals that 49 per cent have spent some of their savings over the past year to pay for unexpected expenses. The problem is that these expenses are much higher than we’ve seen before. With prices rising it’s hard enough to stretch our money to cover our expenses, without having to make debt repayments on top.
The same survey shows some young people are turning to expensive borrowing options. Those aged 18-34 were more likely to use high interest borrowing, with 13 per cent using an overdraft, 9 per cent using a payday loan, and 8 per cent using a store card.
Google data over the past year shows a 36 per cent rise in searches nationally on how to opt out of a pension, which is not surprising given these difficulties. It’s also fair to say that just because someone searches for it doesn’t necessarily mean they will do it.
Employers are uniquely placed to help play a key role in supporting employees with financial education. Recent research from Royal London shows that 68 per cent of employees trust their employer to provide guidance when it comes to their finances.
It’s inevitable that wider savings via the workplace will become more prevalent to cope with shorter term financial pressures. We want people to build their financial resilience and have enough money to retire. We can achieve this by providing a streamlined member experience through benefits design, giving employees greater choice and flexibility.
The solution
We’ve just launched FlexInvest, a payroll savings and investment offering to help support employees to become more financially resilient. FlexInvest will allow employers to streamline pension and investment benefits through payroll. The way it works is simple – subject to auto-enrolment compliance, employees can allocate pension or other entitlements, including employer-matched contributions, into saving and investment accounts.
It caters for everyone – younger employees saving for a house deposit and families saving for children. It also caters for higher earners, many of whom are being paid cash in lieu because of the tapered annual allowance. There’s a belief that if you’re a high earner, you must be sensible and prudent with money. But data from the HL Savings and Resilience Barometer shows that households in the top 20 per cent of earners are more than twice as likely to have variable rate debts than those on lower incomes.
By using FlexInvest, employees can think twice about taking the money as income and just spending it. Withdrawal rates from our workplace Isas are very low, between 2-5 per cent. The figures haven’t changed from pre-Covid to post-Covid, suggesting that once employees have invested in a workplace Isa, they tend not to withdraw the money. There’s a shift in their relationship with that money.
FlexInvest is taking that concept and applying it to workplace savings. It’s a payroll-enabled, short and long-term saving and investing solution through a single admin interface.
It’s about helping employees build their financial resilience by giving them the necessary tools to prepare for both the unexpected and the long-term.
This isn’t personal advice. If you are unsure of a course of action for you or your employees’ circumstances, please seek advice.