A well-designed financial education programme can help staff improve their financial literacy and understand how such changes might affect their own financial situation, as well as generally learn how to make their pay go further.
Money worries have been a major cause of stress and anxiety for staff throughout the recession, and even now, with economic recovery beginning, many people are still struggling to make ends meet.
According to a YouGov survey of employees, Financial wellbeing: The last taboo in the workplace, published in May 2014, conducted on behalf of Barclays Corporate and Employer Solutions and Barclays Workplace Banking, one-fifth say their personal financial problems have interfered with their work.
More tellingly, the report revealed a significant disconnect between employees and employers on this subject, with more than two-thirds (69%) of employers believing staff feel their employer is concerned about their financial wellbeing, but only one in 10 (10%) employees believing this.
Meanwhile, the Chartered Institute of Personnel and Development (CIPD)’s summer 2012 Employee outlook focus , based on a survey of more than 2,000 employees, found that three-quarters (73%) said their employer offered them no financial support or advice to help them understand and manage their finances better. Although only 16.9% of employers offered financial education to their employees, more than half (53.4%) offered access to debt advice, counselling or guidance.
Business case for financial education
However, with measures announced in the 2014 Budget giving defined contribution (DC) pension scheme members greater flexibility at retirement, and government calls to employers and the pensions industry to ensure employees are educated about their retirement options going forward, there is a compelling business case to implement a financial education programme.
These programmes typically provide guidance about financial benefits, including pensions, share schemes and individual savings accounts (Isas). One option for employers is to appoint a financial education provider or independent financial adviser to provide guidance in the form of workshops that cover a range of topics relevant to their particular workforce.
A further option is for employers to segment their workforce and organise tailored workshops for different employee groups to optimise the effectiveness of the programme. For example, debt management workshops could be targeted at younger staff who may be struggling with student debt.
Employers that want to offer a financial education programme should first consider the needs of their workforce and then the basis on which they are prepared to offer guidance. Do they want to work exclusively with one provider or share the workload among several providers that offer different financial specialisms?
The research analysis used for the abovementioned Barclays report applied financial health segmentation to survey respondents. This found that a significant number of employees would benefit from greater employer support in managing their day-to-day finances, as well as education about the advantages of measures such as a savings buffer.
It identified four financial health categories: comfortable, coasting, balancing and slipping. Based on this segmentation, more than half (59%) of respondents were found to be in the ‘balancing’ category, focusing on managing their current financial situation rather than saving for the future. More than one in 10 (11%) respondents, meanwhile, fell into the ‘slipping’ category, which means they have no savings and regularly spend more than they earn.
Once employers have identified which groups exist in their workforce, they can then target education programmes.
Following the sweeping changes to the way employees will access their pension funds announced in the 2014 Budget, the government has also guaranteed that everyone who retires in a DC pension will be offered free, impartial, face-to-face advice about their choices at the point of retirement. It is not yet clear how this guidance will be delivered, although the government will provide £20 million over the next two years to develop the initiative.
Pension providers and trust-based pension schemes will have a new duty to offer this ‘guidance guarantee’.
Providers and trust-based schemes will also be required to ensure the guidance given follows a set of robust standards, which will focus on helping DC members to understand the choices available to them at retirement, engage with products and providers confidently, and access professional independent financial advice.
However, the extent to which many employees are unaware of the changes and what these will mean for their personal situation has been identified in a number of polls carried out following the Budget.
For example, research published by MetLife in May found that more than one in three employees approaching retirement were unaware of the Budget pension reforms, and that 35% are either unaware or unsure about the pensions overhaul due in April 2015, which will enable retirement savers in DC schemes to access their money however and whenever they like from the age of 55.
A survey by Capita Employee Benefits, also in May, found that a quarter (28%) of employees in workplace DC pension schemes have no idea how much their pension is worth. Also, more than half (54%) do not know how much they need to save for their retirement. A similar proportion feel pensions jargon makes retirement planning harder, and 48% say they would be more likely to save into a pension if they understood how it worked.
These surveys show that many employees are not actively engaged with their pension, so there is a need for some form of help and support to make sense of their retirement funds and how to plan for this life event.
However, financial education does not always come cheap, which makes provision challenging, particularly for smaller employers. Some organisations are minimising cost by offering financial advice on a voluntary basis, while others offer employer-funded advice to those most in need, such as retirees. Others target only senior managers and executives by providing financial advice offered by an independent financial adviser (IFA).
But employers must remember that financial advice must only be given by a registered financial adviser.
Retail distribution review
The retail distribution review (RDR), introduced in January 2013, was aimed at preventing intermediaries from making biased product recommendations based on the providers that pay the most commission. This means that financial advice and education from IFAs and benefits consultants is now charged on a fee, rather than commission, basis, which may deter some employers from making a long-term commitment to financial education.
What is financial education?
Workplace financial education involves employers, or a third-party provider, educating employees about financial benefits, such as pensions and share plans, but it can also include individual savings accounts (Isas) and tax planning, and how to use these perks to optimise their financial wellbeing.
Financial education can be delivered to staff through one-to-one sessions and group workshops, and covers a range of topics, such as investment guidance and retirement planning. Online programmes can also be arranged, using webinars and video-conferencing technologies, such as Skype and Google Hangouts.
What are the origins of financial education?
Financial education programmes first began to emerge in the 1970s, triggered by mass redundancies, when many long-serving employees received sizeable lump-sum payments and needed some financial guidance on how best to use their redundancy packages. Initially, this focused mainly on pensions before evolving into the much broader offerings seen today.
Where can employers get more information?
More information is available through Employee Benefits ’ financial education channel
What are the legal implications?
Employers are prohibited from giving employees financial advice. Only Financial Conduct Authority-registered advisers are permitted to do so.
What are the costs involved?
A financial education programme can be expensive for employers, although costs will vary depending on an employer’s size and the provider it chooses. Prices can start from less than £1 per employee per year.
What are the tax issues?
HM Revenue and Customs regards individual financial education as a benefit in kind, with the tax charged generally on the cost to the employer providing the benefit. There are exceptions, for example for pensions advice costing below £150 per employee per year.
What is the annual spend on financial education?
No official figures are available on the annual spend on financial education, but employers can spend as much as £3,500 per employee per year on independent financial advice.
Which are the main providers?
The biggest providers include Anthony Hodges Consulting, Clarity, Close Brothers Asset Management, Friends Life, Jelf Employee Benefits, Life Academy, Lorica Employee Benefits, Mattioli Woods, Money Advice Service, Nudge Global, Origen, Towers Watson and Wealth at Work.