How to build employee financial resilience with workplace savings

Helping cost-of-living hit employees is often short-term. But what they need is financial resilience in the years ahead

Creating a flexible workplace savings strategy boils down to helping employees become financially resilient so they’re better equipped to cope with any future financial challenge. Watch my session from REBA's Future Forum on this topic.

The effects of the cost-of-living crisis and recession are likely to be felt for a lot longer than most people expect and so we have to look for long-term solutions.

People are feeling the pressure of increased costs today and need solutions to help them better manage daily expenses, make their disposable income go further and, if possible, put more money into their pay packets.

It can’t be just about today

But whether we’re talking about one-off payments or pay rises, these are short-term and only delay or reduce the impact of rising costs on employees.

What’s needed is a fundamental shift in thinking – one that recognises that employee financial needs are varied and so a ‘one size fits all’ approach will not do the trick. The future is about choice and putting employees in control.

There has already been a change in thinking in the wider employee benefits mix. Most companies now offer flexible benefits that require employees to really think about their own individual needs and wants so that they can create a package that suits them.

This means, as their circumstances change, they can tweak their package in line with a newly arrived child or a new home.

The menu of benefits and options are presented by the employer, but the responsibility and control sits with the employees.

Most employers look at the take-up rates of each benefit on offer to determine if certain benefits need to go and others introduced. It’s about keeping it relevant – if no one is taking up a gym membership why offer it?

Translating this to financial resilience

Before flex benefits, employee benefits were a static menu of benefits that employees got as part of their employment terms and conditions. It was a list of benefits that was about market competitiveness not employee needs. For someone single with no financial dependants, 10x salary life cover doesn’t really resonate.

Now, although employees might not be able to totally opt-out of life cover, they might be able to at least choose a minimum level and any cost saving can be used to ‘buy’ benefits that resonate better.

Buying down will definitely help with the cost-of-living crisis, but it does nothing for building financial resilience. A better long-term option is redirection.

Employers could allow cost savings to be directed into their pension scheme or more accessible workplace savings like ISAs. There’s something about ‘friction points’ that help build a healthy savings habit. If extra money gets paid into a salary, people are most likely going to just spend it. But if it goes into a separate savings pot automatically, they are less likely to draw down on it.

Fitting in pensions

Some benefits are small ticket items, but there are some that can make a big difference to someone’s ability to build up a savings pot. Pension contributions is the biggest lever here.

Having a pension is about building financial resilience once at retirement … how about financial resilience between now and retirement?

Recognising this gap, some employers allow employees, as part of the normal flex options, the choice to have some of their pension contributions directed into more accessible savings. They’re still saving for retirement, which is important, but they’re also building up their immediate financial resilience.

It’s the natural evolution of flexible benefits – the ability to build a total benefits package that suits individual needs – including pensions.