Helping your employees to walk before they run when it comes to saving
Unfortunately they haven’t learned to walk yet; in fact they’ve sold their legs to pay for their new car. We need to turn our employees from being bad spenders into good savers.
If an employee has debts there is an argument that it would be more sensible to clear debt before embarking on saving. The average UK household debt is currently £54,6363 according to UK Money Statistics June 2016 from the Money Charity. This figure includes mortgage debt. Credit card debt alone is £2,387 per household according to the same research.
Considering debt brings together the financial and mental aspects of a wellbeing programme, currently stress is one of the major contributors to employee absence. The 2014 Labour Force Survey conducted by the Office for National Statistics registered stress as the third biggest cause of employee absence. It accounted for 15 million days across the whole economy.
This represents a half day for each and every worker. The CIPD found that 10% of employers rated financial worries in the top 3 reasons for stress-related absence in its CIPD Absence Management Annual Survey 2015.
The benefits of debt consolidation
Adding a debt consolidation option financed from salary to your benefits programme could make a considerable impact on the financial wellbeing of your employees. It will help them grow legs.
The principles of consoldiating debt and repaying by salary deduction finance are very straightforward. A provider is identified who will consolidate employee debts with a lower interest rate. Repayments are made by payroll deduction giving the employees a debt free destination rather than a seemingly endless debt held on credit cards.
Of course, having enabled the debt consolidation, financial education should be delivered to make sure the employee does not repeat the cycle by ‘maxing out’ their now clear credit card.
For the employee the debt consolidation may postpone their saving in the short term but at the end of the repayment they have the option to divert a significant payment to savings. This would potentially be far in excess of the amount they would have committed without the debt consolidation as the employee is already used to the level of payment made to reduce their debt.
So where should your employees save?
The 2016 budget introduced us to the Lifetime Individual Savings Account (LISA). LISA throws up an interesting conundrum; is it an issue for the Pensions Team or the Reward and Benefits Team? Wherever you choose to consider your approach to LISA we all need to decide whether it is integrated with the employee pension provision, and hence a corporate issue, or is it an individual consideration for your employees?
As a pension is both compulsory and the largest single cost item in most programmes it is logical to include it as part of the programme. Ideally it should also be included on your benefits portal. LISA raises the question “is pension the most approriate savings vehicle for my employees?”
With the introduction of pensions freedoms the tax efficiency argument for pension saving is less persuasive than in the past. The reduction of the Annual Allowance has also made pensions irrelevant for higher earners.
The advantages of a Corporate ISA
Some employers have already introduced a Corporate Individual Savings Accounts (ISA) to their benefits programme. The success of these offers has primarily been directly linked to the extent to which the product offers benefits over and above anything offered on the high street. A carefully constructed Corporate ISA funded from a savings allowance directed to pensions and/or other savings will provide employees with greater choice. It also makes the benefits programme more relevant to them personally.
This approach provides a straight forward solution to the problems of the reduced annual allowance for higher earners. LISA will also be attractive for younger workers with the 25% government bonus. Letting your employees decide on the proportion of their allowance to be directed to debt consolidaton or savings to LISA and/or pensions will make your offering more engaging.
Adding debt consolidation and LISA to your benefits programme will improve the financial wellbeing of your employees, but it’s only part of the solution. Stress remains the third biggest cause of employee absence.
Mixing personal finance with an employee benefit programme may not appeal to all but giving employees the choice can have considerable advantages for employers. Extending to a fully integrated wellbeing strategy can address the issue of stress and help your employees walk with confidence towards a healthier and more financially secure future.
Steve Johnson is principal at JLT Employee Benefits.
This article was provided by JLT Employee Benefits.
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