Simple measures like tailoring financial education or advice to financial trigger points can heighten employees’ awareness of their situation, and employers have every hope of gaining long-term buy-in to the perk, says Sam Barrett
Case study: United Utilities
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With financial products becoming increasingly important, but ever more complex, offering staff financial education to help them maximise the opportunities available can result in significant benefits for employee and employer alike. For the employee, they receive reassurance that they’re making the right financial decisions, while, for the employer, the value of the benefits they provide is enhanced. Ken Murphy, director with independent financial advisers Bestinvest, says: "You can spend a lot of money providing your employees with access to benefits but they might never understand the value of them." Additionally, for those employers prepared to explain the benefits on offer, there will often be a much higher take-up. Orange, for example, ran a series of seminars and a helpline for its employees when share schemes matured using provider Close Wealth Management back in 1999. Tony Newman, employer solutions manager at Close Wealth Management, explains: "Every employee in the share scheme attended the seminars and a high proportion then called the helpline for further information. As a result of this, around 97% of employees took out the corporate individual savings account (Isa) that was available for share scheme proceeds." While financial education in the workplace has tended to focus on the benefits offered by the employer and specific events such as retirement or the introduction of a share scheme, some are now questioning whether a more holistic approach needs to be taken. "There does need to be an overall understanding of the employee’s financial circumstances as even the best product or advice won’t be right for everyone, " says Murphy. As an example, he points to asset allocation. "Investing a pension in Japanese equities might be a good strategy but if you’ve also got a number of [Japan-focused] Isas, you should really diversify your investments more," he explains. Another factor that will affect the financial choices of many employees is debt. And it is not just graduates who have clocked up huge mountains of debt. "We are seeing increasing levels of debts among other employees too. You do have to question whether you should be telling these people about saving into a pension when they might be spending a fortune servicing these debts," says Close Wealth Management’s Newman. Although it might make sense to extend financial education beyond a specific employee benefit focus, those in the know are loathe to do this, and with good reason. Helen Kerley, business development manager at Towry Law Financial Services, says: "I’ve seen an increase in the number of employers asking for more holistic financial education but employees won’t listen to a two hour session on financial planning unless it’s relevant." Linking the advice to specific events makes it much easier to get employees’ attention. These events can occur when share schemes are set up and come to maturity, changes to the pension scheme are made, such as a move from a defined benefit to defined contribution plan, employees are approaching retirement or staff are made redundant. Additionally, financial education can be useful for employees when they are faced with making choices through flexible benefits and voluntary benefits schemes. Towry’s Kerley believes that to achieve the maximum benefit this financial education should be delivered on a face-to-face basis. "We’d recommend running seminars for groups of employees followed up with the option to see an adviser on a one-to-one basis which could look much more at the individual’s circumstances." Grouping together employees with similar financial backgrounds and requirements can also enable the content of the seminar to be extended further. Jonathan Watts-Lay, director at JPMorgan Invest, says that, where relevant, he prefers to speak to groups of employees of a similar age. "The sort of things that would interest a room full of graduates with £20,000 of debt each is very different to a room of employees in their 50s," he explains. For example, when speaking to members of a younger age group who believe they do not have enough money to save into pensions he’ll talk about saving money through remortgaging. "Most people can save at least £100 a month by doing this. If they put this in their pension and their employer matches it, it’s worth £200, then with the tax relief they’ll have created a pot of £3,000 or more by the end of the year," he explains. Once financial education seminars have planted that initial interest, other forms of information can be used to empower employees. These might include literature, such as product brochures or articles in newsletters. Intranet sites are another powerful tool. For example, Towry Law offers its clients’ employees access to its website, www.myfinancial friend.com. This is a secure site that covers everything from state benefits to tax planning. The internet also enables tools to be interactive. "Intranet sites will often have a tool that shows how much an employee’s benefit package is worth but this could go a step further and illustrate what it could be worth if, for instance, they increased their pension contributions," says Watts-Lay. The cost of providing advice is another consideration. This will depend on the adviser and the extent of the service that is required. For example, hiring two advisers to provide seminars and follow-up sessions to employees will cost anything from £700, to more than £2000 for more complex advice. But, there can be freebies. If the education is tied in with the benefits that are provided, then the financial adviser or benefits consultant may offer employees introductory seminars to launch the benefits package or to help them decide which flexible benefits options to take. It’s also common for an adviser to offer a free introductory session for employees to allow their individual needs to be explored more thoroughly. It may not always be necessary to use a financial adviser either. Although the financial services industry is heavily regulated, providing employers follow the rules they don’t need to be regulated to provide financial education. Robin Gordon-Walker, a spokesman for regulator the Financial Services Authority, explains: "An employer can call staff together and talk to them generically about the benefits package but as soon as they start offering specific advice to an individual employee they would need to be a registered individual such as an independent financial adviser (IFA)." Ultimately though it’s all about empowerment. Robert Kingston, senior consultant with Punter Southall Financial Management, explains: "The key is to give your employees enough information to allow them to make an informed choice. Once they have this, they will often take a lot more interest. " What’s available? Targeting financial education around specific events can make it easier to gain employees’ attention. Here are some instances that may prompt employers to offer financial education: Flexible benefits plans As these schemes are designed to allow employees to tailor their benefits package to their individual circumstances it makes sense to provide advice so they can make an informed choice. Seminars should be run before options are selected to allow staff time to decide what’s right for them. Pensions Pensions education is particularly common when a scheme changes, for instance, from a defined benefit to defined contribution plan. There has also been a lot of demand for education programmes to explain pensions simplification changes. Share schemes Whether at the launch of a scheme or at its maturity, this is one of the most common triggers for financial education. Topics covered typically include the benefits of these schemes, the rules surrounding them and the tax position. Debt management With the average household debt close to £8,000 even before the mortgage is added on, more and more employers are running courses to deal with this growing problem. The seminars should address budgeting techniques and the issue of whether saving into a pension is appropriate. Pre-retirement Counselling is usually run at some point in the 12 months before an employee retires and may involve spouses. In addition to examining the financial consequences of retiring, for example, in relation to pensions and any other benefits, pre-retirement counselling sessions can also cover lifestyle issues such as voluntary work and healthcare. Graduate recruits With most graduates starting work saddled with debt, there is a growing need for financial education for this group of employees. As well as covering debt management, sessions can also provide information on other financial vehicles that graduates will use such as mortgages and pensions. Case study: United Utilities Offering employees financial advice and education may not be a common benefit in the utilities sector but at United Utilities, it’s seen as part of the company’s responsibilites. Julie McGowan, secretariat administrator, explains: "It does surprise our employees but we believe we should offer them [education] to help them make the most of their finances." The company, which employs up to 17,000 people in roles as diverse as road diggers to executives, first started offering financial education in the late 1980s when it introduced employee share schemes following its privatisation. Since then, it has extended the range of financial education programmes it provides and as well as offering seminars for employees coming up to retirement, it also runs sessions on maturing share schemes. "It’s important to offer employees access to information. Some years, our employees have made as much as ¬£30,000 from their share schemes which means the potentially face large capital gains tax bills. These seminars give them the information they need to reduce these," explains McGowan. After the seminars, the company always sees an increased take up in its Isa as employees look to shelter their gains. Employees are offered helpline numbers and details of the intranet site where further information can be obtained. They can also arrange meetings with the financial advisers, either in the workplace or at home. "People don’t always want to discuss their finances in front of their colleagues and we find that a lot of the people who attend the courses do ring for further information and advice," adds McGowan. As well as helping staff arrange their finances, she believes that offering financial education also improves employee relations. "It definitely improves the way employees regard the company. We find this increases the trust between us and our employees."