What is financial education?
Workplace financial education involves employers, or a third-party provider, educating employees about financial benefits, such as pensions and share plans. It can also include individual savings accounts (Isas) and tax planning, and how to use these perks to optimise their financial wellbeing.
Financial education can be delivered to staff through one-to-one sessions and group workshops, and covers a range of topics, such as investment guidance and retirement planning. Online programmes can also be arranged, using webinars and video-conferencing technologies, such as Skype and Google Hangouts.
What are the origins of financial education?
Financial education programmes first began to emerge in the 1970s, triggered by mass redundancies, when many long-serving employees received sizeable lump-sum payments and needed some financial guidance on how best to use their redundancy packages. Initially, this focused mainly on pensions before evolving into the much broader offerings seen today.
Where can employers get more information?
More information is available through Employee Benefits ’ financial education channel.
What are the legal implications?
Employers are prohibited from giving employees financial advice. Only Financial Conduct Authority-registered advisers are permitted to do so.
What are the costs involved?
A financial education programme can be expensive for employers, although costs will vary depending on an employer’s size and the provider it chooses. Prices can start from less than £1 per employee per year.
What are the tax issues?
HM Revenue and Customs regards individual financial education as a benefit in kind, with the tax charged generally on the cost to the employer providing the benefit. There are exceptions, for example on pensions advice costing below £150 per employee per year.
What is the annual spend on financial education?
No official figures are available on the annual spend on financial education, but employers can spend as much as £3,500 per employee per year on independent financial advice.
Which prov iders have the biggest market share?
The biggest providers include Aon Employee Benefits, Aviva (now incorporating Friends Life), Anthony Hodges Consulting (AHC), Clarity, Close Brothers Asset Management, Jelf Employee Benefits, Lemonade, Life Academy, Mattioli Woods, Money Advice Service, Nudge Global, Origen, Secondsight, Towers Watson and Wealth at Work.
Which have increased their market share the most?
Pensions providers are probably the most likely to have increased their market share following the introduction of auto-enrolment.
More than three-quarters (79%) of the 252 respondents believed that financial education improved employees’ awareness of, and engagement with, their employee benefits. And 74% said financial education also improves business performance.
A financial education programme typically provides guidance about financial benefits, including pensions, share schemes and individual savings accounts (Isas). One option for employers is to appoint a financial education provider or independent financial adviser to provide guidance in the form of workshops that cover a range of topics relevant to their particular workforce.
A further option is for employers to segment their workforce and organise tailored workshops for different employee groups to optimise the effectiveness of the programme. For example, debt management workshops could be targeted at younger staff who may be struggling with student debt.
Employers that want to offer a financial education programme should first consider the needs of their workforce and then the basis on which they are prepared to offer guidance. They should consider if they want to work exclusively with one provider or share the workload among several providers that offer different financial specialisms.
Pension legislation changes
The surge of interest in financial education has no doubt been driven by the plethora of pension legislation, including the auto-enrolment regulations and pension freedom reforms, low savings and mortgage rates and workforce planning initiatives.
Auto-enrolment, for example, has been in the headlines in May when it was revealed that The Pensions Regulator (TPR) had issued four escalating penalty notices, with a daily fine ranging from £50 to £10,000, against businesses that failed to comply with their auto-enrolment obligations. The regulator used its auto-enrolment powers 446 times in the first three months of 2015, with the total coming in at 1,962 since the legislation took effect in October 2012.
This year has also seen the introduction of the Pension Schemes Act in March. The act, which was first introduced as the Pension Schemes Bill in June 2014, sets out a new legislative framework for private pensions that aims to make risk sharing between employers, individual members and third parties easier. It is intended to encourage and facilitate ‘shared risk’ pension schemes and ‘collective benefits’.
Under the new act, defined benefit (DB), shared risk (also known as defined ambition) and defined contribution (DC) schemes will all become potentially more cost efficient than the traditional final salary schemes where the member is promised a retirement income based usually on their final salary and years of service.
Free financial education
Announced in the 2014 Budget, the government has also guaranteed that everyone who retires in a DC pension will be offered free, impartial, face-to-face advice about their choices at the point of retirement through its Pension Wise scheme.
Pension providers and trust-based pension schemes have a new duty to offer this guidance guarantee from April 2015.
Providers and trust-based schemes are also required to ensure the guidance given follows a set of robust standards, which will focus on helping DC members to understand the choices available to them at retirement, engage with products and providers confidently and access professional independent financial advice.
Employer awareness growing
The HL Corporate pensions report published in January by investment firm Hargreaves Lansdown found that almost 40% of organisations plan to implement a financial education strategy in 2015. In addition, almost half of the 250 employees surveyed said they were concerned they would not be able to afford to retire. According to Hargreaves Lansdown, workers need to save a minimum of 12% of their income to achieve financial security later in life.
Numerous other organisations, such as retail and brand consultancy Fitch (part of the WPP Group), sport, fashion and media behemoth lMG and global healthcare organisation Becton Dickinson, have launched financial education programmes in the last year or two. Center Parcs also incentivised staff to wise up on their financial knowledge by offering them the chance to win an iPad, while HSBC expanded its financial education provision ahead of the pension changes due to come in in July of this year. The banking giant’s programme, KnowYou, which launched in 2013, aims to educate its 45,000 UK employees about its operational changes.
With so much change afoot in the pensions and financial advice sector, it is no wonder that more employers are looking to implement a financial education programme.
96% of employers think that the new pension flexibilities have created a need for more financial education in the workplace (Jelf Employee Benefits, February 2015).
40% plan to introduce financial education strategy in 2015 (Hargreaves Lansdown, January 2015).
73% believe workplace financial education should be employer funded (Jelf Employee Benefits, February 2015).
121%: the increase in percentage of organisations either considering or currently introducing financial advice programmes (Nudge Global, April 2015).
79% of respondents believe financial education has improved their awareness of, and engagement with, their employee benefits (Nudge Global, April 2015).
12%: the percentage of income workers need to save to achieve financial security later in life (Hargreaves Lansdown, January 2015).