A little knowledge goes a long way - the importance of educating employees

We’ve always known that people struggle to understand pensions, but three years of helping employers guide their employees through auto enrolment has been quite eye opening as to just how deep this lack of understanding goes.

As employers tried to prepare their workforces they found not just a lack of understanding about pensions, but also finances in general which made an already challenging task more difficult.

With the freshly launched pension freedoms this is particularly troubling, as millions now have the ability to use their retirement funds however they choose. So it’s more important than ever for employees to build their knowledge and understanding so they can make better decisions later in life.

Providers are giving as much information as they can and directing people to use the guidance guarantee provided by Pension Wise, but this merely addresses a small part of the problem. Employers, advisers and providers have a role to play in supporting the financial education of employees much earlier in the process.

How much of an impact can a little knowledge make?

We found that a little knowledge goes a long way. From our research in 2014, we determined that there are links between people who had basic knowledge about their workplace pension, and how optimistic they felt generally about their financial outlook.

People who didn’t know if the

y were paying into a pension were twice as likely to feel pessimistic about their short-term and long-term financial situation. They were also twice as likely to feel pessimistic about their retirement prospects, than someone who knows the basics about their workplace pension.

Conversely, those in the know about their pension were 12% more likely to feel optimistic about their job security and were generally more open to being encouraged to save more for retirement.

Research conducted in 2013 by the mental health charity Mind, found that debt or financial problems accounted for 30% of overall causes of stress. And with over 15 million sick days taken due to stress, depression and anxiety in 2013, educating employees how to better handle their finances seems like a just cause.

For employees, being better educated in finances has an obvious advantage. They’re better prepared to make good decisions about their money, improving their financial security and in turn, their work/life balance, health and well being.

The obvious knock on effect for employers is a reduction in absenteeism caused by stress. Less obvious, but equally important is the notion that the earlier employees are engaged in financial education, the more able they are to invest in retirement savings and to stop working when they want. This reduces the likelihood of employers having an increasingly unhappy, disengaged staff who want to retire but simply can’t afford to.

Employees also want to be given more support by their employers. Our research found that around one in three employees would like access to financial calculators and tools, as well as face-to-face advice through their employer. Just over one in four would also like to get a personal financial health check and information guides from their employer.

Supporting education

Today there is significant media attention on pensions, and more people are saving into a pension than ever before. When you combine this with the newness of pension freedoms and the time-critical need for those fast approaching retirement, focussing on building knowledge in this area seems like a logical place to start. But it’s important we don’t stop there. The business benefits of having a more financially confident workforce are clear; the earlier savers are supported in gaining a better understanding of financial matters the better.

Employers need to look at their benefits offerings and look ways to build in basic financial education. Auto enrolment and re-enrolment are great opportunities to improve employee knowledge. Employers could also flag resources and services like PensionWise, The Money Advice Service or Citizens Advice Bureau.

Pension providers may also provide educational materials or online resources, like the Scottish Widows Retirement Planning website or MyMoneyWorks for example. They may also be able to give more involved support too. Independent Financial Advisers and Employee Benefit Consultants are able to give expert advice, and could help employers establish a more robust education programme.

The industry has battled for a long while against apathy towards retirement planning, but employees are now starting to wake up to the possibilities regulation changes bring. With all this attention it couldn’t be a more perfect time to start engaging employees much earlier in their journey, and help educate them to make sounder financial decisions. Employers are not expected to undertake this great task alone, but they have the opportunity to be the gatekeepers to their employees’ financial wellness. Employers almost have a moral obligation to support employees through education, to lead them towards a more financially stable future.

This article was supplied by Scottish Widows.