Building a financial wellbeing strategy that supports high earners
I stumbled across this fairly odd comment while reading an online discussion about when you have enough money to stop work. I have no idea how much a giraffe costs, but I suspect that home modifications, land, giraffe food and extremely tall local pet-walkers would all add up to a significant sum.
The comment made me smile, but it also struck me that the author clearly had a plan. This got me thinking back to the oft-quoted Harvard (or possibly Yale or Dominican University*) study about goal-setting. Whatever the actual source of the research, the conclusion of the study seems to be:
“Those who wrote down their goals accomplished significantly more than those who did not write down their goals.”
So how does this relate to building a financial wellbeing strategy to help high earners? Quite simply; you have to help them have a plan.
The fundamental foundation of financial planning is to record ‘wants and needs’ against actuality, develop a plan to achieve your goals in the desired timeframes, then regularly monitor, review and update your plan and progress. Whether from Harvard or Yale, writing stuff down is known to help!
Who do we mean by high earners? Typically those earning at least £70,000 per annum – but there are, of course, various specific thresholds to keep in mind when financial planning (e.g. reduction in child benefit for anyone earning over £50,000 a year, tapering of the personal allowance and the pensions annual allowance once annual income hits £100,000 or £150,000 respectively).
What are the main financial planning challenges for high earners?
Some may consider these ‘nice problems to have’, but a few common examples include:
- Paying more tax than they ever feared they might, especially if their income drifts above £100,000 and they start to lose their personal allowance. This results in an effective tax rate of around 60 per cent for earnings between £100,000 and £123,700 (2018/19 tax year).
- Severe restrictions on how much they can save into a registered pension scheme. For anyone with annual income (not just earnings) of £150,000+, the standard £40,000 annual allowance is gradually tapered down – and can fall as low as £10,000. In a stark reversal of the rules from the 1990s and early 2000s, the more you earn, the less you can pay into a pension.
- Company shares – options, grants and purchase deals are rarely straightforward, with complicated and possibly punitive tax implications for getting it wrong.
- Time – or lack of it! There is a well-known phrase associated with high flyers: being cash rich and time poor. People who earn at the higher end of the spectrum often have little time to think about their financial wellbeing.
‘Boo hoo!’ - is perhaps the response from people lower down the earnings scale, who are struggling with issues such as cashflow and debt management. As mentioned above, these challenges for high earners could well be seen as ‘nice problems to have’. But does that mean that high earners don’t need to be considered as part of a workplace financial wellbeing programme? Absolutely not. High earners are humans too!
All joking aside, your wellbeing strategy needs to be inclusive and cover all segments of your workforce. It should be safe to assume that your high earners are key assets for your business. They’re likely to be busy people, with significant financial commitments, who may also have debt and cashflow challenges. At the very least, providing targeted support to help with some of their tricky tax and financial planning challenges gives great comfort and covers a crucial ‘hygiene factor’.
5 top tips for your high earner financial wellbeing programme
- Ensure timely, relevant communications are in place to spark their interest and encourage action. This can be particularly valuable in the run up to key financial planning dates and deadlines – such as bonus season or the end of the tax year. However you choose to communicate with your employees, remember to allow for the fact that the ‘time poor’ are unlikely to read everything you send them.
- Make it personal. Accepting that mass-communications may slip through unnoticed, personalised emails and messages can make a big difference. These can come direct from your internal HR or reward team or, in some cases, it may be appropriate for them to instead come from your benefits and/or wellbeing partner(s).
- Offer non-pension savings options. For those subject to a reduced annual allowance, your workplace pension may hold little appeal. Fortunately, it is now easy to also offer access to a workplace individual savings account (ISA) or broader savings and investment options. Many modern workplace pension platforms have ISAs etc clearly visible and available alongside the pension. These can offer the added benefits of giving your employees a single view of all their assets, as well as the discounted charges often available on workplace arrangements due to economies of scale.
- Be careful when using ‘cash in lieu’. This is a growing issue, particularly for those who have been subject to a tapered annual allowance for a number of years. In these cases, contribution limits are severely reduced even when using ‘pensions carry forward’ (where you can make use of any unused annual allowance from the previous three tax years).
As a result, although they never envisaged doing so, many employers are now giving cash in lieu of pension. It is important to have a consistent approach here and be clear about taxation. Employer pension contributions are not usually subject to tax or National Insurance Contributions (NICs). On the other hand, any additional salary will cost employers an additional 13.8 per cent in NICs, and the recipient 45 per cent in income tax and 2 per cent in NICs. - Facilitate advice, even if you don’t pay for it. Most employees appreciate having the opportunity to discuss their finances with someone. This is true at all levels of the earnings spectrum, but it’s at the higher end where the type of support needed more often moves from guidance to advice. Your workplace financial wellbeing programme (and budget) can focus entirely on the ‘guidance’ part of the journey – but the most effective will also include a clear and easy route to advice where appropriate.
When running onsite financial wellbeing sessions for high earners, we typically find people fall into one of three camps:
- Thanks – I have an adviser and I’m all set with tax and investment planning. Interestingly, these financially high-functioning employees often still appreciate the opportunity for a second opinion.
- I have been meaning to do this for ages. Time poor, once more. These employees knew there was a potential issue and had been meaning to look at it – the workplace activity provided the extra nudge they needed to take action.
- I had no idea there was an issue. Employees in this group would have been blindly walking into situations that negatively affected their financial position. In many cases, these ‘negative effects’ could be significant.
By providing support and guidance in the workplace, you help to keep your high earners informed about any potential issues so they can plan accordingly. By also offering access to suitably qualified, experienced and regulated advisers, you ensure that everyone is equipped to take appropriate action. Whether you also pay for the advice is a different issue – some employers do, others offer advice vouchers through their flex scheme, most commonly the employees pay the actual advisory costs themselves. In all cases, the risk sits with the firm giving the advice.
So, coming back to my original giraffe theme, this is not a moment to shirk the need of your higher earners. They tend to be influential and hugely valuable to the success of your business, not to mention human beings with their own financial challenges and anxieties. Let’s stick our necks out for them too and make sure they are fully included in any financial wellbeing strategy!
*There is much disagreement online about where the study originated, but broad consensus on the findings.
The author is James Biggs, consultancy & wellbeing partner, Lorica
This article is provided by Lorica.
In partnership with Lorica Workplace
Lorica has one simple aim: to help people develop a healthy relationship with money.
