Even before the coronavirus pandemic, half of the UK’s workforce was borrowing money to pay for basic needs. The recent crisis has worsened the financial situation of many and highlighted the need for more holistic workplace savings propositions
Has the Covid crisis changed people’s attitudes towards savings and financial resilience?
The pandemic has shone a spotlight on many people’s lack of financial resilience. Even before this crisis, research from the Money Advice Service indicated 16m people in the UK have less than £100 in accessible funds. This is barely enough to cover the cost of a broken down washing machine, let alone the potential financial difficulties caused by Covid-19.
The coronavirus pandemic is the proverbial rainy day we have long been told to prepare for, and it has highlighted how important it is to have a financial buffer than can be accessed in an emergency.
Research undertaken by Cushon during the lockdown has shown employees now placed far more importance on saving, when compared to similar research from the year before.
Surprisingly, this response was the same from both furloughed and non-furloughed workers, with almost eight out of 10 employees (77.6 per cent) saying Covid had made them realise how important it was to have savings to fall back on.
Has the pandemic changed employers’ attitudes to workplace savings?
A lack of financial resilience isn’t just an issue for employees, it causes problems for employers too. Money worries affect people’s mental health, and this will have a knock on effective for businesses, in terms of productivity, presenteeism and days lost through sickness. The World Health Organisation has estimated that these problems cost the global economy around £1trillion a year.
There is a growing view among employers that they have an important part to play in addressing this issue. Our research found that 83 per cent of employers agreed they had a responsibility to help employees build up savings alongside pension so they would be better prepared for any future crisis.
Why is it important to take a more holistic approach to workplace savings?
For too long workplace saving propositions have been focused primarily on retirement. This pension-centric approach creates problems for employers as pensions tend to be the most expensive employee benefit, but engagement rates are low, particularly among younger employees. This means a low return on investment for employers.
Many employers have tried to address this engagement issue by simply sending out more and more information about pensions.
We think a more effective approach is to offer a wider range of savings options that address people’s more immediate needs.
For example, there could be the option to switch some of these pension contributions into a Lifetime Isa to help save for a deposit, or, simply to build emergency savings in an easy-access account so people are less reliant on debt.
Numerous studies show that the under-40s prioritise getting on the housing ladder over contributing to a pension. People can’t be expected to think about their financial needs at 65 if they have more pressing money concerns today.
This approach we think will encourage greater engagement with a workplace savings proposition.
Would shorter term saving lead to less money being invested in pensions?
We do not think this will be detrimental to pensions, in fact we think it will be quite the reverse. If people engage with a workplace savings proposition at an earlier age, and see the positive results from savings into a Lisa or an Isa we think they are more likely to engage with pensions later on.
We don’t see this as an either/ or option, just a way for employers to help their employees build both short- and long-term savings. There are a number of ways a wider workplace savings proposition can operate.
There are minimum AE contribution levels, but there may be options for additional sums above this to shift into a Workplace Isa to which employees and employers contribution.
Alternatively employers may want to set up a standalone Isa as part of wider wellbeing programme, which offers financial education and the option for employees to pay into a Workplace Isa via payroll.
This costs the employer little, but can be an extremely effective way to help build financial resilience among their workforce.
How can new technology help?
Technology is essential if you want to encourage employees to save into a workplace pension or Isa.
Today’s consumers expect a personal digital experience. People want to be able to view their accounts, get information and transact via a smart phone app.
Too often in the world of pensions, people are still being sent reams of paper through the door that frankly they don’t have time to read. A modern workplace savings proposition needs to offer online and smart phone capability as a minimum to ensure an efficient and convenient service for users.