Need to know:
- Employers are reporting more appetite among employees to save, especially for retirement, but encouraging a joined-up savings habit can still be challenging.
- Using payroll-based tools is becoming popular, but whatever products employers put in place need to be accompanied by ongoing financial education.
- Employee benefits professionals are key to helping organisations navigate what can be a complex product and regulatory landscape.
For any employee benefits professional looking to embed a more joined-up savings approach within their organisation, the good news is that, after a difficult couple of years financially for many during the cost-of-living crisis, there are signs the appetite to save is beginning to return.
Nudge Global’s Global financial wellbeing report published in April 2024, for example, found that, for 90% of people across the globe, growing savings is now their top financial goal, with 87% also prioritising saving for retirement.
Research by Wealth at Work, published in June 2024, meanwhile, found that two-fifths (39%) of employees believe they will not be able to ever retire due to the rising costs of living. Four-fifths (81%) are concerned that they will be less comfortable in retirement due to a shortfall in savings.
Jonathan Watts-Lay, director at Wealth at Work, says: “There is a realisation among employers that it is not just about the pension but also that employees need other ways to save.
“There is more acceptance now that there needs to be a holistic view of savings, encompassing everything from budgeting tools and discount vouchers right the way up to retirement saving.”
Retirement shortfall
But the news that most people still are not even saving enough towards retirement, let alone for anything else, should be a top priority. Whatever tools and benefits employers do offer alongside a pension must be accompanied by ongoing financial education, says James Biggs, partner at Employee Benefits Collective.
This needs to be framed around the benefits of building up a short-term rainy day and emergencies savings buffer, more medium-term savings for big-ticket life events such as putting down a house deposit, starting a family, or going travelling, and then longer-term retirement saving. But the messaging also needs to be realistic, especially given ongoing cost-of-living pressures, he advises.
“If [employers] get the message right and people see there is value for money in using a workplace-saving scheme, the lightbulb goes on,” Biggs says.
However, Gemma Burrows, director at Willis Towers Watson, argues: “What we’ve been seeing is, rather than employers just putting tools on the same platform for employees to elect into and pay contributions in from their bank account, they are facilitating that via payroll.”
Another increasingly popular option is for employers to build flexibility into how employees can use, or where they can direct, their employer’s pension contribution.
“It’s set on a sliding scale," explains Burrows. "There will be the auto-enrolment minimums that needs to be complied with, obviously. But, beyond that, as an employer you give people the option of selecting how they use anything above a certain amount.
“So, can they direct where you want those contributions to go? Some will go into the pension, some could go into a shorter-term savings product such as an [individual savings account] (Isa) or general investment account (GIA). This can help create a positive savings habit and allows an individual to plan for differing financial needs.”
Pensions engagement
What, then, should employee benefits professionals be considering in this context? The key is simply to be proactive, regularly reviewing their offer and communicating and engaging with employees, says Heidi Allan, head of financial wellbeing at LCP. Employers should ask when the last time they reviewed their benefits was, and when the last time was that they thought about communication strategy and information flow, adds Allen.
“Do employees really understand what benefits are in place?" she says. "Do they understand how these work and how to access them? And are they the right benefits and meeting the needs of [the] organisation? Has [the] benefits package evolved with employees?
“So, [employers need to] have a look at [their] benefits, understand what products and services are being utilised. Or, if they’re being utilised, if not, why not?”
Given the number and variety of products now on the market, and the competing noise from providers to get them noticed, the expertise of the employee benefits professionals in helping employers navigate this fast-changing landscape is becoming increasingly important, says Tim Perkins, co-founder of Nudge.
“When it is your responsibility to introduce, launch and provide the governance on highly regulated products, there is a lot of responsibility there," he says. "First and foremost, [they] need to be making sure [they] really understand what people want. A product might look great but that doesn’t necessarily mean it aligns to [their] people. So, take the time to learn what their aspirations are.
“Second, make sure you’ve got that layer of governance, which, again, comes from financial education. That protection which comes from people being properly informed and equipped to make the right decision with what is a highly regulated product.”
Finally, employers must ensure that their objectives are aligned with the provider, which is not always the case. The motivations of the provider must always match the employer’s objectives.
