How a one-pot solution could meet life-long saving needs
Financial wellbeing isn’t just about employees feeling like they’re able to make ends meet today, it’s about making sure they’re on track to meet all their future financial commitments and goals.
Balancing the books today gives a sense of relief, but knowing that you’ve got a robust plan for the future can reduce financial concerns or anxiety and provide a sense of financial wellbeing. It’s about being in control of your finances, and that’s the end goal here.
So why don’t some employees feel in control? There are a lot of factors at play, but the two big ones are detachment and priority.
Detachment is a symptom of lack of ownership and the best example of this is pensions. Employees might be really engaged with other financial services that matter today, such as their mortgage or their personal savings, but not with their pension.
In a sense, the way pensions work takes away any need for ownership: someone else is making the decisions, funds can’t be accessed until age 55 and retirement can feel far off.
Priority is about what is keeping someone awake at night and for most, especially younger, employees this is definitely not pensions. Worrying about increasing living costs, debts and trying to get on the housing ladder are the immediate priorities.
Maslow and his hierarchy of needs really brings this point home – the theory is that until someone can meet their more immediate needs, they’re unable to think about their future. It makes total sense.
So, taking these two points into account and looking at it from a younger employee’s point of view, pensions, at least on their own, don’t do much for making them feel financially well today.
A single pot for all savings
The solution, if there was a blank sheet to start from, would probably be a single savings or investment pot that an employee has their entire career. Both they and their employer would contribute and it would cover an employee’s entire lifetime of saving. There might be protective restrictions, but ultimately employees can access the pot when they need to and eventually it provides an income for retirement. It provides money for now and money for the future.
When the Lifetime ISA (hence its name) was first tabled, it was effectively going to be exactly this – a pot for life. But, by the time it came into being it had effectively transformed into a replacement Help2Buy ISA with a pension supplement add-on.
There are calls from corners of the industry to look again at this, for instance allowing people to be able to access their pension in certain acute financial situations, but, despite the cost of living crisis, the status quo is unlikely to change.
Bringing a sense of engagement
What if employees had a workplace savings scheme that consisted of both an accessible savings pot and a pension pot. The employer and employee contribute to both, with the employee in control of how much goes into each pot based on their financial needs – albeit with at least the legal minimum requirement going into pension.
This way the employee is saving for retirement and for all other financial needs that might come before that. It’s not just about retirement, it’s about an entire financial journey. Just think how much more engaging and meaningful this would be for employees. It creates a sense of ownership as there are decisions to be made, and it allows employees to set their own financial priorities, creating a sense of financial wellbeing – not just for today but long-term, too. It doesn’t have to cost more, it’s just about allocating the current money differently.
This structure already exists. At Cushon we implemented it for our employees a while ago and a several of our clients have followed suit. It speaks to every employee, regardless of age. Older employees have more, if not all, contributions going into the pension, while younger employees have the maximum they can going into their accessible savings pot.
It’s about choice, allowing employees to take control and create a savings product blend that best suits their own financial situation and the path to long-term financial wellbeing.
In partnership with Cushon
Cushon is an online savings&investments platform provider, offering holistic workplace savings.
