The future of financial wellness

Transcription

1 The future of financial wellness

2 Introduction The UK labour market has gone through a wholesale transformation over the past 20 years driven by a combination of financial, business and social change. This transformation has seen the emergence of a transient, multigenerational workforce with more diverse needs than ever. This is all made more complicated by the fact that these newer generations have less money in real terms than pretty much any time post-war. Generation X is going to struggle to retire, whilst Generation Y can barely buy a house. With all of this financial pressure comes stress and, as a result, eyes are turning to employers to reduce this impact by improving the wellness of their people, both as a duty of care and to optimise employee engagement and business productivity. Whilst this isn t a recent trend, the majority of employers are still not doing enough to support their employees mental and financial wellness, certainly compared to the investment made towards physical health. This has been highlighted in our Employee Benefits Watch 2016/17 which surveyed over 200 HR and reward professionals and 500 employees in the UK covering a headcount of nearly two million to compare their respective views on benefits and assess whether, in their current form, their benefits are still fit for purpose. In this report we use these insights and take a deep-dive into market trends around financial wellness, analysing what support employers are currently providing to employees, how effectively they are communicating their offerings and whether they are meeting their employees expectations. 2 The future of financial wellness

3 The imperative to support employee financial wellness A recent study by the CIPD shows the number one cause of stress in the UK is money worries (22%). Considering 10 million working days are lost each year due to stress 1, it emphasises the urgent need for employers to support employees and reduce this trend. Even if employers aren t looking at financial wellness through the eyes of their employees, they must recognise the impact of reducing absence. The good news is that, albeit slowly, the market is responding to this trend. We are seeing more providers come to market with new offerings and traditional benefit providers developing their propositions to meet demand. But our research has shown that although 65% of employees cite financial wellness in the workplace as being important to them, a worryingly low 7% of employers actually provide any sort of support. The solution is there, but is it being adopted? For HR and reward professionals the main challenge is understanding where financial wellness fits into their wider benefits strategy and deciding on how to develop a fit-for-purpose offering for employees. There are genuine concerns amongst HR and reward professionals too, raising questions such as: Are we giving advice? Are we not just going to detract from our hard work getting people bought into pensions? In addressing these concerns, those that are ahead in their approach have taken the time to understand the needs of their employees and have looked to solve a targeted set of problems, rather than implementing a one size fits all approach. Our research backs this up, showing that relevance and convenience are the key factors in determining whether employees will engage with a financial wellness programme. Providing employees with access to the right solution at the right time is a critical factor for success, and underpinning all of this is technology. So just how important is financial wellness to employees and how do HR and reward professionals set about creating and implementing a financial wellness plan? 1. HSE The future of financial wellness

4 More than just a secure retirement One of the biggest challenges employers say they are facing in the UK is making benefits relevant to all employees. Over 55% of employers testified to this in our latest research. But what is clear is employers are continuing to get it wrong when it comes to financial benefits for their employees, with many equating financial wellness with the provision of a pension plan and life assurance. Whilst 97% of employers are funding a pension scheme for their employees (unsurprising in an auto-enrolment world) less than 7% actually provide any sort of retirement planning support for their employees. This does not make sense given the incessant legislative reform that has driven greater complexity than ever before. Especially when you compare the 65% of employees that would like this kind of financial support to the 7% of employers offering it. Although the above issues and retirement itself remain important, we believe retirement as we know it is obsolete for large swathes of employees, who simply can t afford to stop work one day and draw a pension the next. With so much regulatory change, how can a 25 year old who may not retire for another 40 years be expected to buy into a retirement model that is quite simply not going to exist when they can finally give up work? At the same time, our 25 year old (if we assume the national average) is more than likely to be saddled with student debt (currently averaging just shy of 25,000 2 for the 2016 student cohort but expected to rise to over 40,000 when tuition fees rise). They are also likely to be looking to get on to the housing ladder at a time when average deposits for first time buyers have doubled since 2007 now close to 33, With average debt per adult in the UK standing at 29,675 (or 113.4% of average earnings) we can see there needs to be at least equal emphasis on providing relevant solutions to financial problems in the here and now rather than for a moving target in the future. 7% of employers provide retirement planning support for their employees but 65% of employees would like this kind of financial support. 2. The Money Charity Halifax 4 The future of financial wellness

5 This demonstrates how employers need to wake up to the fact that whilst the baby boomers are well placed for a financially secure future, it is the generations behind them who are facing the greatest pressure and who need that wider financial support now. Our view is that this problem can and should be solved in the workplace and employers who are really concerned about their employees wellness now have the tools available to them to meet these complex needs. Understanding what different employee groups need and tailoring a financial wellness programme with relevant solutions for each group is crucial. For example, those employers who are segmenting their workforce, providing appropriate benefits for each group, are twice as likely to be very effective in meeting their benefits programme objectives (21% compared to 10%). They are also showing that their employees are more engaged with their benefits package and with their organisation as a whole. Whether employers supplement workplace pensions with ISAs (lifetime, corporate or maybe both), debt consolidation products, budgeting tools, financial and mortgage advice - or just simple online financial education - the solutions are ready and available. Those employers offering financial solutions to their employees in the workplace are already reaping the rewards with their benefits programme being over twice as likely to be very effective (33% compared to 13%). Together with a 22% increase in those employees who are extremely or very engaged in the workplace against those employers who are not currently providing wider financial solutions. Looking at those organisations who are not keeping up with the need for financial wellness, for us, paralysis is the big concern; without choice and the ability to empower themselves to make the right financial decisions, employees are being failed by employers. So these financial products are available, but how can employers embed these into a rounded financial wellness strategy? 5 The future of financial wellness

6 21% Of employers say their benefits programme is very effective 46% Of employees are very or extremely engaged with their organisation 32% Of employees are very or extremely engaged with their benefits programme Organisations using segmentation in their communications and benefits offering Organisations not using segmentation Of employers say their benefits programme is very effective 10% Of employees are very or extremely engaged with their organisation 35% Of employees are very or extremely engaged with their benefits programme 20% 6 The future of financial wellness

7 20% 20% 30% Organisations using mobile applications to give employees access and communicate benefits programme Of employers say their benefits programme is very effective Of employees are very or extremely engaged with their organisation Of employees are very or extremely engaged with their benefits programme Organisations not using mobile applications 11% 3% 21% 7 The future of financial wellness

8 To fix the problem you must break the barriers As we continue the journey into the digital world there is a rapid move away from defined benefits towards those that can be instantly accessed when employees need them. We call these on-demand benefits. Our research shows that the largest single factor influencing employees perception of benefits (ranked 8 out of 10) is convenience - quite simply employees expect the same consumer grade Amazon or Uber experience when selecting and using their benefits. Supporting this, those employees that have access to their benefits via a mobile app are six times as likely to be very engaged with their organisation and much more engaged with their benefits (34% compared to 21%). When delivering an effective financial wellness strategy, it is vitally important that employers abandon the mentality that a standard pension meets the financial needs of all their employees. Instead, giving employees a wider range of options, accessible on the tools they need and want to access their benefits. Our research shows that 68% of employees want to access all of their benefits from one single place, yet only 16% of employers actually offer this. Similarly, 54% of employees want to access their benefits from a mobile device when only 28% of employers are offering this, and 54% of employees want year round benefit selection but only 38% of employers provide it today. Finally, 52% of employees want single sign on access to their benefits but there are just 27% of employers offering this facility. So what does this mean? It is clear that the market is moving fast and employers are not keeping pace. The provision of financial wellness services and education need to be delivered to a mantra of making every aspect convenient and accessible for employees. 8 The future of financial wellness

9 Our research evidences that employees are far more likely to feel empowered and take control if they have the choice of benefits and they can easily review, select and manage them. This is mirrored by the survey feedback from employers; 91% of whom believe ease of access has a high impact on benefits engagement and 85% believe that the range of benefits they offer further drives increased engagement. Nevertheless, looking at this through the eyes of the employee only 20% of employees are currently very satisfied with the range of benefits on offer, and only 19% are happy with the communication of benefits. There appears to be a clear disconnect between what employers believe drives engagement and how benefits are perceived by employees. The common denominator is access and choice. People are far more likely to engage with their finances if they can review their pension, make changes to their ISA and book in a mortgage appointment at a time and in a way that suits them. The ability to manage financial benefits in one place breaks many of the barriers to having a successful financial wellness strategy, but how can HR and reward professionals create a culture of financial wellness in the workplace? 9 The future of financial wellness

10 The simple steps to delivering financial wellness As it stands only 15% of employers have implemented a financial education programme in comparison to 47% of employers who offer traditional total reward statements to their employees. When we consider that 65% of employees are craving financial support in the workplace we can see that employers are still some way behind meeting current employee needs in the workplace. What has traditionally gone before is no longer fit for purpose. The good news is that our research suggests financial wellness programmes are high on the agenda for UK employers, with 47% considering implementing one for their workforce as we approach Those employers who are offering financial education programmes have employees who are twice as likely to be very or extremely engaged in their organisation (38% compared to 19%). They are also proving to be more effective in meeting their benefits objectives (21% very effective and 89% effective compared to 10% very effective and 10% not effective at all). This spike in engagement and effectiveness demonstrates the true value of financial wellness to employees, helping them make sense and cope with the financial pressures of day to day life. When we consider the economic and financial pressures prevailing in the UK currently, our view is clear that financial education and wellness needs will continue to boom into 2017 as employers listen and respond to the needs of their employees. 1. Listen to employees identify what their core financial needs are 2. Understand the market and talk to providers 3. Analyse workforce data employers need to ensure they are offering the products that employees need and ensure there s a strong correlation between financial needs, demographics and life stages 4. Decide on short, medium and long term financial wellness goals 5. Embed a financial wellness programme into the overall benefits and reward strategy 10 The future of financial wellness

11 So how can employers develop a financial wellness strategy? Employers need to look at the make-up of their people. There is a strong correlation between financial needs and the stage employees are at in their personal life and career. For example, whether an employee is looking to buy a house, is having a baby or has a lower salary. It is also important for HR and reward professionals to look at whether their retirement plan take-up suggests a well-informed workforce and whether employees engage with financial decisions, such as fund selection and salary sacrifice. Finally, in our experience employees don t know what they don t know, so it is important to ask the right questions to really get under the skin of what the real needs and wants of employees are. Once HR and reward professionals have looked from within it becomes easier to set the right strategy for financial wellness. But how can they go about this? Firstly, it is really important for employers to identify their short, medium and long term financial wellness goals. Whether it is reviewing Lifetime ISA solutions in time for April 2017, analysing the impact of AE in April 2018 and beyond, or looking at longer term ways of implementing technology to facilitate the overhaul of finance benefits - HR and reward professionals need to have a clear strategy. Secondly, employers must understand the market and take the test. With the pace of change and with so many providers clambering to get solutions to market it is important to take a holistic view of what may resonate with employees. HR and reward professionals should talk to providers and understand how solutions could work for individuals and how they fit together. With clear goals and an overall approach defined, HR and reward professionals can start to meet the financial needs of their workforce and start to reverse the disparity between what employees want and what they have been providing. The final piece of the jigsaw is embedding the approach into the wider benefits picture. HR and reward professionals should manage and review its performance side-by-side with other initiatives making it part of the wider ongoing benefits governance. 11 The future of financial wellness

12 Summary The evidence for clear financial wellness in the workplace is increasingly compelling and has a natural link to wider benefits strategies for almost all UK companies at a time of great economic, political and legislative change. Employees are facing greater financial pressure than ever before and it seems to be at a time when employers are shifting more responsibility onto employees with the move away from defined benefits to on-demand benefits. The numbers back this up. According to analysis from The Money Charity, people in the UK owed nearly 1.5 trillion at the end of August 2016, up from trillion at the end of August 2015 that is an extra 995 per UK adult for the year 4. The same analysis shows that savings rates for UK households in Q averaged just 5.1% of post-tax income at a time when interest rates dropped to 0.25%. Things are tough for employees and it is unsurprising to see financial worries featuring top on the list of stress causes in the UK. Whilst employers cannot be responsible for all of the financial decisions an employee makes, our view is that there is a significant role for employers to play in the financial wellness of employees in the UK. Simply burying heads in the sand won t solve the issues at hand. Employers can provide the platform to empower employees to improve their own financial outcomes. We have provided employers with a blueprint for enabling financial wellness starting with due diligence of what is available and what is utilised today measured against the demography of each organisation. Data is key to understanding who employees are and what they want. 4. Money Charity stats for October The future of financial wellness

13 Once HR and reward professionals have the data to understand what they may want to deliver, they then need to look at how to deliver it. As explored in this report, focusing on providing relevant benefits and convenient access to benefits are key to engaging employees. We know that employees want the access and experience they get when they transact in any other aspect of their 21st century lives where and when can I get it?, what is relevant to me?, how can I learn about it?, how do I review it? and how can I transact?. All of these questions should be tested and easily answered. This could be an employee buying the latest tablet or joining a Corporate ISA for the first time as they embark on saving to get on the property ladder. Either way the experience needs to be the same and the facilitator has to be technology a single platform to empower, engage, and communicate employer's ambition to support their financial wellness. The ultimate conclusion that we draw from this latest piece of research and insight is that to improve employee happiness and engagement, employers must look beyond pensions to a much broader financial wellness solution Without it, employers will fail to address the needs of more and more of their people as the years go on. 13 The future of financial wellness

14 Appendix 1. HSE The Money Charity Halifax Money Charity stats for October E: connect@thomsons.com W: thomsons online benefits 14 The future of financial wellness