How financial advice for staff can protect employers

Today I gave birth to Jill (bear with me!). Jill is 32 years old and earns £24,000 per annum. She works for a company and has been enrolled in the pension scheme. Jill is a saver and having been fortunate enough to pay off her student debt, contributes 5% of her salary into her pension and her employer matches this with an additional 5%. So far so good.

Now Jill being the meticulous planner that she is decided she wanted to check whether her contributions are enough for her to hit her retirement income objective. This is where I took over from fictional Jill and decided to put her details into the calculators of three different pension providers.

A staggering difference

The difference in outcomes is staggering. Jill who will retire when she receives the state pension at age 68, can expect at best a pot of £378,000 and at worse £144,000. These were the high and low estimates of the providers tested. This wide variation can mean the difference between someone deciding not to increase their contributions as they feel safe vs panicking and taking action.

Now, if you work in pensions you can probably come up with several reasons for this massive discrepancy - such as differences in charges, inflation expectation, investment performance etc. However, this doesn’t help Jill very much. Jill, who like the average U.K employee, has very little understanding of more complex financial calculations, will be utterly confused by why there is such a large difference. In fact, you can go as far as to say that she might even feel that she is being an misled.

An angry employee

Just say Jill wasn’t 32 but closer to retirement and these variations had stopped her from saving more into her pot at a crucial time. Jill is now angry as the retirement she dreamed of has been taken away from her and she is looking for someone to blame. In this case there is only one place to turn. Her employer.

In this circumstance her employer has no option but to fall back on the terms and conditions that were not immediately obvious when the employee was doing their modelling. The result: although the guidance service provided some useful initial information the employer feels they have let down a valued employee and Jill is now seeking legal recourse against her employer.

A different experience

Now let’s compare the experience that Jill has if her employer had given her access to a digital adviser.

Jill, after answering a few questions to ensure she didn’t need help managing any debt or building up a cash buffer, would have been given a personalised recommendation about how much she should invest each month and into which funds. The digital adviser would then report back frequently to ensure she was on track and that she was fully aware of the performance of her pension pot.

Now let’s say Jill was unhappy with the service. When the employer recommended the adviser to Jill it was Jill who signed an agreement with the adviser. If she has a complaint she can go directly to the financial ombudsmen who will adjudicate between her and the adviser. The employer having done due diligence on the provider is covered.

I would stress that guidance is certainly better than nothing at all and anything that gets employees to engage in their finances is useful however the employer has an added layer of protection when offering advice that can be extremely valuable if employees are ever unhappy about the services that are being offered.

The final myth I would like to dispel is that ‘financial advice is too expensive to offer to all employees’. Technology means it has never been simpler or more affordable for employers to offer their staff access to financial advice. You may even find it is cheaper than many of the benefits your staff are currently offered and far cheaper than the outcome of an unfavourable court case.

Phil Blows is director of Wealth Wizards.

This article was provided by Wealth Wizards.