Seminars, one-to-one question and answer sessions, and interactive online methods are some of the financial tools being used by employers to increase the impact of their benefits, says Vicki Taylor
Case study: Capita Group
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When it comes to informing employees about their financial benefits, many employers simply present their staff with a bulk of written information and leave them to wade through it. But while you can lead a cow to water, you cannot make it drink.
Research such as the Financial education project carried out by the Life Academy (formerly the Pre-Retirement Association) has found there is an over-reliance on written material and that it is often simply ignored by employees.
David Cassidy, chief executive officer at JP Morgan Invest, explains: "Some employers produce reams of information but [finance] is a very dry subject.
Typically, if employees read it, they don’t understand it. If they do read it and understand it, they don’t necessarily understand it in context." To help tackle this problem, employers are increasingly taking a more active approach to financial education using a broader range of communication strategies such as seminars, one-to-one question and answer sessions, and interactive online tools such as pension modellers. This education isn’t only being offered in response to specific events such as retirement.
There is a growing trend for employers to provide general financial advice to help employees manage their personal finances. David Parish, head of financial education at HBOS, explains: "We can offer a general presentation that covers the basics like what an Annual Percentage Rate (APR) is, how you check your credit rating and things like that, but we also give the company the opportunity within that presentation to add slides about their benefits."
Taking this approach can help employees see where they may have surplus money available to invest in the benefits offered by their employer. "A lot of people have a number of store cards that they are paying 29.9% APR on. They think they haven’t got any money to save for their future, but it is because they are not managing their debt as efficiently as they could," Parish adds. One reason why financial education is beginning to rise in popularity is the closure of final salary pension schemes. "There hasn’t really been a need to educate employees because financial independence was put on a plate for them. They stayed with [an] employer for forty years and when they retired got two-thirds of their annual salary," says Cassidy.
He adds that the pensions simplification legislation offered some great opportunities for employees to make more of the financial benefits offered to them, but that many aren’t doing so because employers don’t always understand the implications enough to pass on the necessary information on to staff. "Everyone thought A-day was the end of it but it is just the beginning.
Employers just don’t understand how much more attractive they could make their job offering and their employee benefits simply by offering [financial] education." Cassidy says that pensions simplification, for example, enables employees who have bought shares through a share incentive plan to enhance the value of the maturing investment by putting it in an employee-owned self-invested personal pension, thus attracting pensions tax relief.
Tony Newman, employer solutions manager at Close Wealth Management, believes financial education can help to protect employers from any comeback if employees haven’t completely understood what is required of them. For example, without sufficient education, staff may not realise they are liable for Capital Gains Tax on the profits from shares sold after a company share scheme matures. If the aim of financial education is to drive employee take-up of a specific benefit, Newman doubts employers will be disappointed. "Financial education can make the financial benefits that firms offer so much more attractive just because they are explained. It’s a bit like buying something from a hardware shop: you often don’t understand [how to use] it until you have read the instructions. "We did some work with United Utilities which tripled the amount of people using their corporate Individual Savings Account (ISA). It was a direct result of people coming along to financial education seminars. People just never understood what a corporate ISA could do."
Employers that want to provide financial advice typically have two main options: providing this in-house or employing a third-party adviser. If employers choose to provide a scheme themselves it is important not to stray into the realm of giving financial advice, unless it has been authorised by the Financial Services Authority.
However, employers should bear in mind that not being able to answer specific questions and give advice relevant to an employee’s circumstances might leave their staff more confused than when they started. Holding a forum where employees can ask specific questions can also help to boost their understanding. "What we found is if we just deliver the presentation and walk away it is a bit like taking a kid to a sweet shop and not opening the door.
"These people suddenly have questions they want to ask but it is really difficult in a seminar to put their hand up in front of their colleagues and say ‘I have £15,000 on my credit card and I am really worried’," says HBOS’s Parish. The fees will vary depending on an organisation’s requirements.
Some providers, such as HBOS, offer free seminars on the basis that some attendees will later make appointments with them, while others will charge from the outset. JP Morgan Invest, for example, can offer a service for £10 per employee per year. "That is providing seminars, clinics and back-up systems,’ says Cassidy. Tailoring communications to suit different groups within an organisation’s workforce can also be effective.
Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development, explains: "You have to look at the different media as well as the learning styles of the employees. You can find out through the employees themselves what they prefer."
Whichever route employers take, it is clear that the popularity of financial education is increasing and can be a useful tool to have at an organisation’s disposal.
Professional services and outsourcing company Capita Group has offered a sharesave scheme since 2000 and a share incentive plan since 2002. It uses a range of methods to educate its employees about its share schemes, including mailing booklets to their home addresses, hosting presentations and putting information on the company intranet.
Julie Richardson, client relationship director at Capita, explains the aim is to give employees enough information to make informed decisions. Through the intranet, staff can also access information on mortgages, will writing and financial savings products, although it is careful not to stray into the realm of financial advice. "Our website doesn’t give financial advice, it gives information. If people require financial advice they can see a professional financial adviser at a discounted rate," says Richardson.
She adds that while there is no direct benefit to providing general financial information to employees, financially-astute staff are less likely to be stressed and may therefore take less time off work to sort out their financial affairs.
Using financial education
Financial education can be delivered using a range of communication methods, including seminars, booklets, one-to-one sessions and online information.
It can ensure employees are aware of the benefits provided to them such as pensions and share schemes, while helping to boost take-up rates.
Financial education can also be used to help employees make decisions about their personal finances.
While providing general financial education on mortgages and Annual Percentage Rates won’t directly benefit the company it could reduce employee stress leading to lower absence levels.
Allowing staff to see how their personal finances can be rearranged might also help them free up cash to start investing in company benefits.
Employers can provide financial education themselves or employ a third party.
Unless they are authorised by the Financial Services Authority employers can only give information to staff and not advice.