We’re in a pension crisis. Millions are locked out of them and many of those in them are disengaged. This crisis isn’t close to being over, and is not helped by the ever-rising cost of living that’s sadly, yet understandably, swaying people’s priorities away from saving for the future to tackling immediate costs.
This poses a very real risk for people’s future financial security – the cost-of-living crisis could see millions of working people retire with too few savings. Not only is a guiding hand needed, but we must alter the way in which we view pensions and savings for the future.
Financial wellbeing and mental health
In November, we hosted our 2022 Savings Summit. Our keynote speaker was Dr Alex George, Youth Mental Health Ambassador to the UK Government. He pointed out that mental illness is costing the economy billions of pounds, and the biggest cause of worry, anxiety and stress is finances. He added that if employers can support your employees, they are going to see the benefit from [improved] mental health and productivity.
Speaking at the event he said: “Ultimately what happens outside the workspace affects what happens inside the workspace. There is a moral duty for employers and people in the workplace to consider how we support people.”
The current wider economic environment is far from positive. Four in five adults are worried about rising costs, according to the latest ONS data. Our own research – commissioned as part of our latest whitepaper Building the financial resilience of the UK workforce – found 68 per cent of employees say that when they worry about money it affects their mental health. And alarmingly, over 62 per centare not confident that they have saved enough for retirement.
Employee financial wellbeing makes business sense
Considering the impact of financial wellbeing on employees’ mental health is a “good employer” issue. But it also makes smart business sense too. Our research shows that more than two-fifths (43 per cent) of people admit that financial worries affect them at work. A happy workforce is a productive workforce, and if employees have peace of mind regarding their finances, they can focus on the job in hand.
Sarah Porretta, propositions, insights and external engagement director at the Money and Pensions Service (MaPS) says: “More and more employers are recognising that there is a business case showing real benefits to helping employees with financial wellbeing and it’s something they should do and want to do.”
What employers can do
Our research shows that almost half (47 per cent) of businesses say that their employees want support schemes introduced. Employers need to harness this desire.
While pensions auto-enrolment has been a success, the fact is it does not capture everyone. This includes under 22s and those who do not meet the minimum earnings threshold of £10,000pa, the later tending to affect more women than men.
We have been calling for the government to update the rules for auto-enrolment by lowering the age to 18 and reducing the earnings trigger to ensure more people are covered by the legislation. In the meantime, we have shown that employers can take matters into their own hands.
Working with the University of Lincoln, we auto-enrolled student employees working for the university into an alternative savings pot, provided by us. From here, employees can choose to move to an Isa of their choice. The scheme defaults them to a 3 per cent of salary contribution, with the university contributing 6 per cent. But they can choose to pay in more and in return the university will also increase its contribution up to a maximum of 8 per cent.
So far, there have been encouraging results, with one student employee able to save £5,000 over the academic year. Fewer than one in 10 (8 per cent) have opted out, and engagement has been high with around four in 10 using the Cushon app to check on savings every week. We’d encourage employers around the country to adopt similar schemes while auto-enrolment remains in its current form.
The wider industry
At our Saving Summit, Dr Alex George noted that for younger people financial worries is the biggest concern that they have, followed closely by climate change. For us, these two issues must be at the forefront for the pension industry.
Pensions in their current form aren’t fit for the 21st century and it’s impacting engagement. Generally, young people aren’t saving which has a huge impact on financial wellbeing and mental health. The industry inadvertently excludes people with technical jargon and old-fashioned paper-based practices.
61 per cent of employees agree that the information and language around pensions is too complex, while a further six in ten want to be able to manage their pension through an app. The industry must work to address this and modernise to attract younger savers and educate them about the necessity of saving for the future.
It’s no secret that the pensions industry has a significant carbon footprint too. On average a pension pot in the UK finances 23 tonnes of CO2e emissions every year – the equivalent of a return flight between Heathrow to JFK for every tonne.
To engage younger people, this needs to be addressed – half of under 24s (49 per cent) would be more likely to pay more into their pension if they knew their money was being invested in a planet positive way.
Ending the crisis
The pensions crisis is in full swing. There are issues surrounding auto-enrolment, which in its current form excludes thousands of people. The industry lags in terms of terminology and technology. And there is a direct correlation between these issues and the financial well-being and mental health of young savers.
The University of Lincoln auto enrolment savings scheme proves we can empower employers to take the initiative and offer alternative saving options to employees. But this isn’t a quick fix and more needs to be done by government and the pensions sector.
We can change pensions and later-life saving for the better. But first, we need to recognise the root of these issues and work to tackle them.
