Why is financial education and guidance so important right now?

Financial education and guidance has always been beneficial to the financial wellbeing of employees and pension scheme members, regardless of the climate. However in times like these, when individuals are extremely concerned about their finances, they are perhaps more likely to make knee-jerk decisions which could have a lasting impact on their retirement income.

The risk of knee-jerk decisions

Due to the adverse impact the crisis has had on household income levels, there is the risk that some members will see their pension as a way of supplementing their income before actually retiring. The pensions industry has a duty of care to ensure that members have an understanding and awareness of the implications of early withdrawal and the potential risks involved.

Financial education and guidance can help members understand the tax implications of their decisions and explain the other options available to help manage money, such as reducing costs through debt repayment deferrals. It can also help members look at alternative savings which may be more appropriate to access than their pension.

Not only this, financial education can also help individuals understand the risks surrounding pension scams. The Financial Conduct Authority’s figures indicate that pension savers have lost more than £30 million to scams since 2017. This is particularly concerning at the moment as, unfortunately, fraudsters see turbulent times like this as an opportunity to con savings from pension scheme members.

We know that once an individual has received financial education and/or guidance, they become aware of many of the complex issues they need to understand regarding their pensions, general savings, tax and so on. In doing so, many realise they need regulated financial advice to make informed decisions.

The best ways to provide financial education and guidance

Financial education and guidance can be delivered in a number of ways, but social distancing rules have meant that many employers have had to adapt to this changing environment.

Although face-to-face seminars are a popular and effective method, especially for those considering retirement, other forms of delivery such as online seminars are proving to be an engaging alternative. Using a skilled facilitator to work alongside the presenter online is really useful as they can help to manage questions and support rapport building. Simple things like having a break and running quizzes helps to recreate the classroom experience and encourages group participation.

We are finding the results from our online seminars, even those that are more than two hours in length, are receiving great engagement scores and feedback. The key is to understand the online process and check-in with delegates throughout.

Additionally, to help those at retirement, virtual one-on-one guidance sessions, which could be delivered via a video call or via the telephone, are particularly useful as it offers the support employees and members need to help them clarify elements of their financial situation, and to gain a deeper knowledge of their options. Offering a range of delivery methods can also ensure the majority of employees are always supported, whatever their needs.

Ways to alleviate financial worry

For many, the strain that the pandemic is having on household budgets is a time of worry, anxiety, uncertainty and stress. It’s well known that financial worries cause increased levels of stress and absenteeism amongst employees, and that it leads to lower productivity.

It is vital that employers take steps to help their workforce take control of their finances during this uncertain period. How companies manage it will have a huge impact on their future reputation and the retention and motivation of remaining employees.

Increasing numbers of employers are putting financial education programmes in place to help their employees understand the various issues surrounding their finances, as well as one-to-one financial guidance or regulated financial advice for those who need more support.

Many employers are unable to offer this support themselves, hence the need for specialist providers. These providers can help employers to develop a strategy that is tailored to their organisation. Not only can this help employees feel financially secure, but it can also drive improvements in employee engagement, productivity and retention.

The author is Jonathan Watts-Lay, director at WEALTH at work.

This article is provided by WEALTH at work.