Focus on facts
What is financial education?
It is a structured process and set of learning objectives designed to inform employees about financial matters. It is often focused on educating around relevant employee benefits, such as pensions and share schemes, but can also include help with saving money. Traditionally, content can be delivered through seminars and one-to-one meetings, but providers are now using technology such as webcasts, DVDs and podcasts to make it
more interactive and meaningful.
What are the origins of financial education?
The first employee programmes focused on pensions, but they have since evolved into the far wider offerings available today.
Where can employers get more information and advice?
The Money Advice Service on 0300 500 5000.
What is the annual spend on financial education?
There are no official figures available, but employer spend is increasing each year, with pensions auto-enrolment believed to be a major catalyst this year.
Which providers have the largest market share?
The biggest providers include Anthony Hodges Consulting, Clarity, Close Brothers Asset Management, Friends Life, Life Academy, Lorica Employee Benefits, Money Advice Service, Origen, Wealth at Work.
Which financial education provider increased its share most in the past year?
Pension providers are likely to have the largest share of the financial education market at present because of auto-enrolment, which begins to be introduced from October this year.
Nuts and bolts
What are the costs involved?
It costs as little as £30 per employee to attend an online webinar but considerably more for a consultant to come into the workplace for a day or afternoon to talk to people in groups or individually. The Money Advice Service offers free one-hour workplace seminars.
What are the legal implications?
Employers are prohibited from giving employees financial advice. Only Financial Services Authority-registered advisers can do so.
What are the tax issues?
HM Revenue and Customs treats individual financial education as a benefit in kind. Pensions advice costing below £150 a year is exempt from tax, but in reality very little will fall below that price threshold.
Financial education has become increasingly important for employers to offer to their staff, particularly around matters such as pensions auto-enrolment, says Tom Washington
Financial education has become far more than run-of-the-mill communications by employers striving to help their employees’ pay go further. It is now also a useful tool to help organisations highlight the value of the perks they offer.
One of the benefits of a well-planned financial education programme can be an increase in benefits take-up, as employees gain knowledge about tax, national insurance and making their money and benefits work for them.
However, the Chartered Institute of Personnel and Development’s 2012 Reward management survey, published in May, revealed that just 20% of employers offer financial education to their staff.
But Jonathan Watts-Lay, director at Wealth at Work, says auto-enrolment, which begins to come into force in October, and the removal of the default retirement age are prompting employers to provide financial education. “We normally receive two or three big tender documents a year,” says Watts-Lay. “This year we have already had four. There is definitely a greater focus on driving value from employee benefits.”
Employers’ financial education progra- mmes typically cover money management, including the varying tax treatment of alternative savings methods; retirement planning; and investments such as pensions and sharesave schemes.
Financial education was once the realm of independent financial advisers and accountants, but it is increasingly being provided by specialists, such as Wealth at Work. Many insurers, such as Legal and General, Standard Life and Friends Life, also provide financial education, particularly around pensions.
Neil Hawkins, executive financial education manager at Friends Life, says employers should be using financial education programmes to help educate staff about matters such as the demise of defined benefit (DB) pension schemes. “As employees are becoming increasingly savvy and at the same time are required to make more financial decisions, quality financial education is becoming ever more important,” he says. “By educating using holistic material, communicating using simple language and specific information, we can nudge and encourage employees to take responsibility for saving for their own futures in an informed and positive way.”
When appointing a financial education provider, employers need to ascertain the level of complexity required for their workforce, as well as the format for delivering the information. Traditional methods include group seminars, face-to-face meetings and online conferencing, which are useful for organisations with staff in remote locations.
Hawkins adds: “Most employers have diverse workforces, so online conferences are a convenient way of accessing people at their desktops or laptops without the cost and inconvenience of arranging room hire and travel. More and more clients prefer this option.”
However, providers are increasingly using social media, instant messaging and smart phone applications to increase the reach and relevance of their programme, with bold designs and colloquial language used to engage younger audiences.
Other important decisions are when to offer a financial education programme, and to whom. Life events such as retirement, redundancy or promotion are obvious catalysts for financial education. When staff approach retirement, for example, they face complex options on how to maximise their pension savings and need advice about how each option compares in terms of possible income.
Helen Boylett-Smith, head of retirement options at Lorica Employee Benefits, says the removal of the default retirement age has added a layer of complexity to retirement planning, calling for more in-depth pre-retirement financial education. “A lifestyle options or pre-retirement seminar may help employees focus their minds on the best time to leave the workplace, or indeed whether they can afford to leave,” she says. “Retirement planning is no longer a cliff-edge event.”
Johanna Lennon, a communication consultant at Aon Hewitt, adds: “It is important for employers to take the time to understand their employees and their needs, segment their audience accordingly and use a multi-media approach to delivery, taking care to tailor the method of communication, format, images, language and tone of voice to suit each segment.”
Employers also need to consider providers’ contractual terms when devising financial education programmes. Lennon advises employers to ask themselves how long they are committed to using a particular provider, whether it is an exclusive relationship or one that allows them to share the workload among several providers that offer expertise in different areas of finance, and whether the person responsible for the day-to-day implementation and management of the programme is comfortable working with their provider equivalent, before entering into any deal.
Whether or not the government-run Money Advice Service will play a part in employers’ future financial education programmes remains to be seen. A Treasury select committee is currently reviewing the service, which provides financial information and education for consumers. Stuart Royston, chief executive of charity Life Academy, says: “We support the service, but I doubt it is using its no-doubt limited resources for the right targets. It has had a focus on large companies, but I would welcome a move in the Money Advice Service to [help] those in society who need its service but cannot afford to pay.”
For now, financial education around auto-enrolment is likely to dominate employers’ to-do lists. Many will have to come to grips with running a pension scheme for the first time, with little understanding of what it means. Friends Life’s Hawkins adds: “As a major expense for employers, it will be important that their staff are aware of and appreciate the benefits that are being provided to them, and financial education will have a role to play in achieving that.”
The extent to which employers will want to use third parties to provide financial education after the introduction of the retail distribution review (RDR) on 1 January 2013 remains to be seen. Under the RDR, financial advice and education from independent advisers and employee benefits consultants will have to be charged on a fee, rather than a commission, basis, which will force employers to reconsider their commitment to providing financial education to their workforce.
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