Jonathan Watts-Lay, director, WEALTH at work, answers questions on financial wellbeing in the workplace
Our survey showed that employers’ financial wellbeing priorities for the next year are reducing stress-related absence due to financial worries, and helping employees struggling with day to day debt worries. How can businesses fulfil those needs?
Helping employees with money management and developing appropriate budgeting skills can go a long way towards fulfilling these priorities. That’s about helping employees to not get into debt, learning how to manage their situation if they are in debt, and making sure that borrowing doesn’t spiral out of control.
Making a distinction between good debt and bad debt is a valuable starting point. Good debt might be a mortgage, for example. Although it is still a form of borrowing, having a mortgage is a manageable loan. It’s still important, however, to periodically review your arrangements to make sure they are appropriate.
Bad debt typically involves borrowing at very high interest rates. Spiralling interest can cause further financial worries in addition to the loans themselves. In the most extreme cases, this could involve payday lenders, but it can also apply to more common forms of borrowing such as credit cards. Helping employees to consolidate debts held in different places, as well as making effective use of interest-free periods on credit cards are some simple ways to support them.
Even if employees aren’t struggling with serious debt, there are still ways in which they can make sure that their pay goes as far as possible. Giving guidance on the importance of switching utility providers, for example, or shopping around for car insurance can make a big difference. There is little point in being loyal to providers as you are rarely rewarded for it. In markets such as car insurance, it’s unlikely that you will get a renewal quote that is better than what’s on offer from a change of provider.
A good financial wellbeing programme should give employees plenty of guidance and clues on how to take more control over their finances. But it’s important to focus on ideas that are genuinely helpful. Suggesting that people give up small treats that they have an emotional attachment to – such as their morning cappuccino or a visit to the pub on a Friday night – are unlikely to engage employees. People are far less likely to be emotionally attached to their car insurance provider than they are to spending time with their friends over a drink, and financial wellbeing strategies need to take account of that.
According to our survey, the biggest pensions-related challenge for employers is meeting auto-enrolment increases (42%). How is this likely to affect businesses, and what will the impact be?
At face value, the additional auto-enrolment contributions due in April 2018 and again in 2019 are a cost of doing business. Many businesses will already have factored these into their plans, although they will hit some employers harder than others. Auto-enrolment take-up rates so far have been good and hopefully this will continue after the minimum contribution increases.
One challenge, however, has been the timing of the increases. These have coincided with other additional costs, such as a rise in business rates, the introduction of the apprenticeship levy for large companies, and the uncertainties caused by Brexit. These have combined to create a bigger cost burden for all businesses.
How do you see financial wellbeing developing in the next three to five years?
Many large companies either already have a financial wellbeing strategy in place, or they are planning one. The area where we are seeing the most development is around retirement, to support individuals as they plan how to use their pension savings after the age of 55. Financial wellbeing has been less prevalent amongst small and medium sized businesses to date, and it will be interesting to see how those employers approach this in the future.
WEALTH at work is a leading provider of financial education, guidance and advice in the workplace.
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