The importance of workplace savings in improving financial resilience

A compelling statistic illustrating why workplace savings are so important comes from Money Helper (previously the Money Advice Service) which confirmed that, even before the pandemic, there were over 16 million people in the UK with less than £100 in accessible savings.

Put another way, that’s 16 million people in the UK, just under a quarter of the population, without an adequate financial buffer. For some of those fortunate enough not to have been furloughed, the pandemic offered the opportunity to turn this around. According to the Bank of England those with increased disposable income, accumulated £125bn more in savings than expected during the first nine months of the pandemic.

Although we can’t be sure of the precise factors that have driven this increased focus on saving, our own research carried out in 2020 sheds some light. Regardless of financial position, the pandemic helped 76% of employees realise that having savings to fall back on is important. Since scientists are already warning about future pandemics, it’s vital that people are supported in becoming more financially resilient – and it’s particularly important employers take some responsibility for this, especially as our research shows that 67% of employees say money worries affect their mental health and 60% say that money worries affect their performance at work.

According to PwC’s 9^th annual Employee Financial Wellness Survey, nearly one in two employees are distracted by money worries at work. Through increased absenteeism and presenteeism, poor financial wellbeing is costing companies over £1.5 billion a year, the Centre for Economics and Business Research estimates.

The question is, what role can employers play in helping staff become more financially resilient?

First, organisations should resist equating workplace savings with just pensions. A healthy pension pot is not going to help a younger employee deal with an immediate financial crisis – and this is what being financially resilient is all about, it’s having accessible cash reserves. While saving for retirement is important, Cushon research shows that 73% of employees agree that building up savings that can be accessed when needed is just as important.

As can be seen by the Bank of England figures and our own research stats, many employees are in saving mode, and so employers need to strike while the proverbial iron is hot. Again, Cushon research shows demand is there, with 58% of employees indicating they would save into a workplace savings scheme set up by their employer.

Setting up a workplace savings scheme as an adjunct to the pension scheme is easy and it provides the kick-start that employees need. Saving that comes straight out of pay is far easier to stick with than saving from a bank account – employees learn to live on what arrives in their bank account each month and if they’re hitting a sticky financial patch, they’re more likely to cancel payments coming out of their bank account than they are out of their pay.

This more holistic approach is catching on and it’s driving a sea change in the way employers view their pension contributions. It’s an option called pension redirect and it can lead to increased employee engagement while also helping employees become more financially resilient.

For clarity, pension redirect is where an employer allows employees to choose to have some of their and the employers’ pension contributions (that are over and above auto enrolment minimums), paid into a workplace ISA. It not only helps employees build up a financial buffer, but also enables them to save for other goals like getting on the housing ladder.

My prediction is that in the near future, pension redirect will become the norm. It’s been gaining traction for a while now, but the pandemic and the subsequent heightened awareness of the importance of financial resilience has really pushed the concept forward. With research showing just how much money worries affect employees’ performance at work, workplace savings with or without pension redirect are now a crucial part of the benefits mix.

The author is Steve Watson, head of proposition at Cushon.

This article is provided by Cushon.