According to American research, employers running workplace savings plans are missing a trick or two.
Employees want to get better, taking financial decisions and are looking to their bosses to help.
Employers have the opportunity to improve per capita productivity by getting staff involved in saving. In the process, they’ll be future-proofing themselves against the kind of class actions that are becoming common on the other side of the pond.
Stress less – save more
A March 2015 survey conducted by State Street Global Advisors (SSGA) revealed that the 60% of the 1000 employees, age 20 to 69, said they were emotionally stressed and distracted by their financial situation. This financial stress included the unsettled feeling that they have not done enough to prepare for retirement.
Of course, you don’t have to be a workplace psychologist to work out that by providing employees with the tools to get to grips with their finances, they could improve productivity, reduce future liabilities and have a happier place in which to work.
Equally important, when employees have greater clarity in their financial situation, they are better able to focus their attention and actions towards their retirement savings and future financial security.
By putting staff in charge of their finances, argue SSGA, people can move on to pensions.
Such was the analysis of the SSGA which went further with recommendations for employers seeking to create a greater sense of financial well-being among their employees.
Because the financial demands of many employees extend beyond just retirement savings, SSGA suggest that a more holistic approach is required to address concerns in all aspects of their financial lives. Issues such as health care costs, burdensome debt, and meeting family obligations need to be dealt with before, or as part of decisions about retirement saving.
Stress less- save more – work better!
In getting to grips with financial stress among staff bosses would would be managing their business, their investment in pensions and their duty of care to staff welfare
Does financial wellbeing really improve productivity?
Numerous studies have shown that, when companies deliberately focus on the overall financial well-being of their employees, they experience measurable gains in morale, retention, and productivity. Employers, who can take away stress as a distraction, can expect greater productivity from their employees which ultimately translates to higher profits.
Can employers really improve staff saving behaviours?
Employers with guilty consciences over the closure of DB plans, know full well that it’s up to their staff to fend for themselves. While they can do a lot to properly choose and manage the workplace pension , in the final analysis it is a case of money in/money out (with time invested being the yeast that leavens the bread).
All the American research suggests bosses who allocate sufficient resources towards financial education and investment guidance experience an increase in participation and contributions. The effect is circular
- staff who become financially confident tend to save more
- by saving more, staff become more financially confident
- as confidence increases, so does attention to the pension.
- as confidence in retirement planning increases – so does financial well-being and productivity
How does this future proof employers ?
In America there is a fiduciary requirement on employers running pension plans (401k) to provide a minimal level of education and guidance. This mean ensuring everyone who’s “in” are provided with the resources to better understand their retirement needs and to able to make sound investment decisions
Setting aside, for the moment, the opportunity to achieve significant gains in productivity and the use of the workplace savings plan, employers feel they have a potential liability if the expectations of staff are not met. For many staff, the expectations of staff are still based on a lifetime at work equating to 2/3 final salary after work.
The concept of mis-selling a pension promise, is something that many employers are all too aware of, and while it has been the insurers and advisers who have been held to account in the past, employers are aware that even in terms of reputational , the switch from a DB to a DC promise is fraught with risk.
So how do bosses make this happen?
We’d say Upgrading from “statutory communication” to “financial education”
In America, many employers running workplace pensions outsource “financial education” to a pension provider or financial advisors who offer a basic level of support as part of their service.We’d call this the provision of statutory communications – or the bare minimum.
Larger companies may have the resources in-house to provide a higher level of education and communications.
The thought is that what’s good for the big companies will be good for the smaller ones
Since all such bosses have to go down this path anyway, they may as well conduct the cost-analysis of upgrading the financial education they are required to provide to a level that would overtly demonstrate their concern for their employees’ overall financial well-being.
If, on average, 60 percent of your employees are stressed and distracted by personal financial concerns, there’s plenty of scope to achieve significant gains in morale and productivity – and to cut the cost or risk benefits to boot.
And making it easier for people to save (and get credit) in the workplace
So far, efforts to set up workplace savings plans to help people get financially solvent have failed. This could be for a number of reasons which could include
- Our insatiable appetite for debt, whether to buy houses, smash the credit card or take out pay-day loans
- Our distrust of showing our bosses we have the means to save (no need for a pay-rise…)
- Lack of interest in the savings product (retail ISAs can be cheaper than workplace ISAs)
But with credit becoming harder to find and with the cost of unsecured credit becoming apparent, there is an opportunity for credit unions to step into the market.
I will be writing more on this opportunity later in the week. There has been pioneering research on this subject carried out by the CIPP and driven by their CEO Lindsay Melvin.
This time last year, the CIPP’s Karen Thompson published a paper “Saving through payroll” . You can download it from here.
Employers and their staff need education and a credit-creating means to save.
In our opinion, we need financial education but that education needs to go somewhere. Credit Union savings plans, with their capacity to help out those in hard times through peer to peer lending are an excellent way to help those financially stressed to deal with their problems.
A company relies on the productivity of all its staff, not just those at the top. Advisers and providers who want to improve retirement saving may want to start with de-stressing the workforce and build on that platform.
We’d agree, payroll is the idea way to manage the savings process, payroll should embrace the CIPP’s work, but so should the complimentary HR and pension functions.
Save more – stress less.
So these simple credit union savings plans could be the platform on which the long-term success of auto-enrolment is built- in a way that strengthens the balance sheet rather than stressing it!
The CIPP have compiled a list of evidence for their views that includes some excellent opinion and research, I’ve picked out the best of what I’ve read.