Ways to help employees boost their savings and pension pots using share save schemes
When the Financial Conduct Authority (FCA) surveyed people for its 2017 Financial Lives Survey about their savings and investments, it found that seven in 10 people had no investments at all, and only around four in 10 had cash savings of more than £5,000.
While auto-enrolment will undoubtedly have helped since then, Covid-19 hasn’t.
This year, the financial pressures brought to bear by the pandemic have resulted in one in 10 workers with pensions either reducing contributions or stopping saving altogether, according to recent research from pension provider Scottish Widows.
And among young people aged 18 to 24, the percentage to have cut pension savings is even higher at 18%, according to the same research.
So, what can employers do to turn the tide and help their workforces be better prepared for life’s curve balls, both now and in the future?
For Graham Bull, MD – All Employee Services at Equiniti, providing share save schemes is a step in the right direction. “Share save schemes are a fantastic introduction to saving and investing,” he said. “One thing we have seen recently is more employers giving share scheme incentives worth, say, £200 or £300 to employees in recognition of their efforts during this difficult year, which is also a great way to get employees involved – especially when cash is tight.”
But while encouraging employees to pay into a low-risk investment scheme for a three or five-year period undoubtedly helps get them into the savings habit, a longer-term investment plan is the real game changer.
“Share save schemes are often popular,” said Sara Smith at EQInvest. “But at the end of the term, many people sell their shares and walk away. That’s why we want to raise awareness of the benefits of continuing the investment journey by transferring the proceeds to another tax-efficient investment vehicle, such as an Individual Savings Account (ISA) or a Self-invested Personal Pension (SIPP).”
Taking it one step further
There’s no one reason employees choose not to reinvest the money they receive at the end of a share save scheme. While many have already earmarked the cash for a big outlay such as a holiday or a deposit on a new car, others are hampered by their lack of knowledge about investment options – and may even end up taking more risk with their money as a result.
“Many people are unsure of their options when their share save schemes come to an end,” adds Smith. “Some people take up the option to buy shares in their companies, which is fine but remains a high-risk strategy – much more so than diversifying their investment across a range of companies and sectors.”
By communicating the benefits of using share scheme proceeds for longer-term investing from the outset, employers have a double opportunity to boost employees’ savings and pension pots.
Tuning in to individual touch points
It’s not hard to see why the financial stress and uncertainty caused by Covid-19 is having a detrimental effect on savings. On the plus side, however, the pandemic appears to be encouraging more people to focus on their finances and potential vulnerabilities on that score.
While this year’s Employee Benefits Pensions research reveals that 38% of employees have either reduced or stopped their pension contributions, it also indicates that 22% of workers have sought financial advice via their employers since the pandemic began.
And there’s no shortage of enthusiasm on the employer side; 79% of companies are now keen to help their employees make informed decisions about retirement, Employee Benefits found.
Financial education represents just one piece of the puzzle, however.
When it comes to share save schemes, it’s also important to offer outgoing members easy access to investment vehicles that fit their financial outlook. For a younger employee, this could be a Lifetime ISA that offers generous government-funded incentives when used to save up for a house, for example. For a more mature member of staff, it might be a SIPP they can use to top up their workplace pension savings.
Next, make sure employees know about the options available by communicating them in a variety of ways, including expert podcasts, regular emails explaining the benefits, and social media updates.
After all, what better time to approach employees with investment advice than when they have money to invest?
The author is Andrew Woolnough, director at EQ HR Solutions.
This article is provided by EQ HR Solutions.
In partnership with Equiniti
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