Why employees’ financial resilience needs new thinking post-pandemic

As the pandemic struck, the Money Advice Service estimated there were more than 16 million people in the UK with less than £100 in accessible savings; which could hardly be described as financially resilient. With millions of people furloughed at some point in the last year, others facing a reduction in pay and many more worried about long term job security, the need for a financial buffer has become even more pressing.

There’s no doubt that the pandemic has shown us how important financial resilience is; it’s the most extreme version of a rainy day that any of us could have imagined. This was born out by those who were fortunate enough to have their pay remain fixed, but their expenses reduced, who rather than spend the extra cash decided to save it – just in case. According to the Bank of England, this fortunate group, during the first nine months of the pandemic, accumulated £125 billion more in savings than expected. LCP’s Insight Clarity Advice report (Feb 2021) described them as “accidental savers” and all eyes are focused on them to see if the habit lasts and they become “permanent savers”, or post-pandemic they spend what they’ve accumulated.

Regardless, the bottom line is that no matter how someone’s finances have been affected, employees have woken up to the importance of financial resilience. Our May 2020 research found that for 76% of employees the pandemic has made them realise that having savings to fall back on is important. This is the first pandemic we’ve faced on such a scale and scientists are already warning about future ones, so it’s vital people are supported to prepare and become more financially resilient and adaptable to change – particularly as two out of three employees say money worries affect mental health.

What role can employers play in helping staff build up a financial buffer?

Before the pandemic, wellbeing programmes placed a lot of emphasis on financial education in the workplace, but now employees are looking for more practical help from their employers – they don’t want just the theory, they now need access to solutions. Nearly three quarters (72%) of employees told us that they think their employer should offer some sort of workplace savings scheme in addition to the pension scheme.

One of the biggest changes that the pandemic has brought about is employees’ attitudes to workplace savings – they realise that it can’t just be about pensions any longer. Having a healthy pension pot that can’t be accessed until age 55 is not going to help a 30-year-old get through a difficult financial patch. Saving for retirement is important but building up savings that can be accessed when needed is equally important – our May 2020 research showed that 73% of employees agree with this.

Employers need to take a more holistic approach to workplace savings – one that isn’t pension centric and recognises that employees have varying financial needs and require other workplace savings solutions to run alongside the longer-term pension pot.

Many employees are in a saving mentality right now and so employers need to strike while the iron’s hot and offer their employees more value from their benefit packages. The demand is there – our research showed that 58% of employees say 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.

A more holistic approach to workplace savings

This more holistic approach is catching on and it’s driving a real sea-change in the way employers view their pension contributions. It’s a win-win situation and it’s called pension redirect – offering better employee engagement whilst also helping employees become more financially resilient.

Pension redirect is where the employer allows employees to choose to have some of their – and the employer’s – pension contributions, over and above auto enrolment minimums, paid into a workplace ISA. It not only helps employees build up a financial buffer, but it also enables them to save for other financial events like getting on the housing ladder.

Take a 25-year-old struggling to get the deposit together for their first home. They’re not particularly engaged with the company pension scheme but then they’re given the opportunity to have some of their employer pension contributions paid into a Lifetime ISA with a 25% government bonus. This will help them get a deposit together a lot quicker and also increases their engagement with savings and pensions generally.

My prediction is that post pandemic, workplace saving schemes and innovative options like pension redirect will become the norm. These options were there before, but the pandemic has shown how important they are and made employers sit up and give them serious consideration. With three out of five employees saying money worries affect their work performance, not only does a workplace savings offering help employees, but employers will also benefit from a workforce that is more engaged, more loyal and less stressed – safe in the knowledge they are supported to build their financial resilience.

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

This article is provided by Cushon.