The top issues a financial education strategy should incorporate in 2017

Financial education 2

Need to know:

  • Giving employees guidance around effective retirement planning is a key issue that a financial education strategy should focus on in 2017.
  • Financial wellbeing in the context of broader employee wellbeing is also set to continue to be a key trend.
  • Employers will also need to consider educating staff about alternative saving methods to pensions, especially for those employees affected by the changes to the pensions annual allowance.

Supporting employees with financial education and guidance looks set to be as big an issue in 2017 as it has been in recent years. Thomsons Online Benefits’ Future of financial wellness report, published in November 2016, found that 47% of employers are considering implementing a financial wellness programme in 2017. But what should the focus of a financial education strategy be in the new year?

Retirement planning and education

Workforce planning is a key concern for employers, and is supported by effective retirement planning. Jonathan Watts-Lay, director at Wealth at Work, says: “[Employers] need to ensure that their employees can afford to retire, so are running an education programme often for a number of years before retirement to really get them thinking about all the options and considerations.”

There is still a great deal of confusion among employees over how they are going to build their retirement benefits and what that value might be. Angus Jones, managing director at Clarity, says: “Employers need to help, they are part of the solution. Employers have a duty to get involved with the communications piece so that employees can find logical solutions to [any] problems they’ve got.”

Financial wellbeing

Covering a range of financial issues, education sessions that focus on employees’ broader wellbeing will be of great interest in 2017. In the aforementioned Thomsons Online Benefits’ Future of financial wellness report, 65% of employee respondents said that financial wellness is important to them. “We are talking to a lot of [employers] requesting financial wellbeing strategies,” says Watts-Lay. “This is much broader, covering all employees but on a segmented basis: what do [employers] do about employees that may have issues around debt, or for employees that may not be saving enough for the future?”

Looking after the financial wellbeing of employees will bring benefits to an organisation, as well as peace of mind for the individual; BHSF Employee Benefits’ Breaking the cycle report, published in November 2016, found that 31% of employee respondents cite finances and money as the top cause of stress. By giving employees the tools and education to get a handle on their financial worries, an employer will be supporting their mental, as well as financial, health.

Mark Rowlands, head of defined contribution (DC) services at Mercer, says: “Financial wellbeing is a trend that is evolving all the time. It means different things to different organisations. How it works at an employee level is giving them the ability to make better choices around their money and their debt so that they can then withstand a financial shock.”

A financial shock can affect anyone at anytime and could be something as simple as a burst pipe or a dent in their car; but if the cost of repair is £200, and the employee only has savings of £100, where do they go to get the balance? A financial education programme can assist employees in preparing for situations such as this when the worst happens.

Alternative saving methods

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Employers will also need to educate staff on the many financial planning options available to them. One example is for those employees affected by the changes to the pensions annual allowance and the limits on what they can pay tax-free into their pension. Those employees will need to question what tools are in place to help them decide how much they should be saving, and whether their employer offers an alternative to pension contributions.

“Going forward, in three or four years’ time, I think employers will be offering much more of a menu of solutions for the ‘pension contribution I’m prepared to pay as an employer’,” says Jones. “But it doesn’t have to go into a pension: it might be an [individual savings account] Isa, school fees savings plan, [or] university costs saving plan. Employers and the whole industry need to open out the options as the government restricts what [employees] can do in the traditional pensions world.”