Financial Education: Back-to-basics guide to financial education

If you read nothing else, read this . . .

• Financial worries can reduce an employee’s effectiveness at work.
• Employers need to be aware that different methods of communication suit different types of employee.
• Workplace financial education works best when it is focused on a particular event or financial concern.
• Auto-enrolment requirements, as part of the 2012 pension reforms, will bring new challenges and opportunities for workplace financial education.

Case study: E.On empowers staff through financial education

Energy firm E.On has used the government-backed Money Advice Service (MAS) (see interview, page 3) to provide various types of financial education for its workforce for around four years.

Ant Donaldson, senior specialist employee benefits UK, says: “I think it is a great resource. It is very low cost and high impact, and the key thing is people actually use it.”

E.On first used the service to deliver a series of 90-minute seminars – 60 minutes of MAS’s general financial education programme covering pensions, savings, debt, mortgages and insurances, and 30 minutes on E.On’s own benefits package. Over an 18-month period, about 3,000 staff attended the seminars.

Then, in 2010, when the company closed a site at Rayleigh, Essex, it used MAS to help provide seminars on redundancy. “About the same time, we started to make this available to attendees, but also on our intranet we set up a ‘Making the most of your money’ page that links through to its website,” says Donaldson.

The intranet page received 10,000 hits and MAS booklets were distributed to 5,000 of E.On’s employees.

Next, the company used MAS material as part of its occupational health team’s campaign on mental health – a touring ‘head shed’ that visited E.On’s most remote and isolated workers (those most likely to suffer workplace stress). “Across the campaign, which lasted a year, calls to our employee assistance programme on debt issues went down,” says Donaldson.

In December 2011, E.On began offering access to MAS’s online financial health check, which was taken up by 500 staff in the first six weeks. The company has also reconfigured its seminars into 20 to 30-minute ‘bite-sized’ chunks focusing on pensions. “If it goes well, we will do a lot more later in the year around auto-enrolment,” says Donaldson. “About one-third of our people are not in a pension and we are encouraging them to join ahead of auto-enrolment.”

Economic pressures on workers increase the importance of financial education and employers must make sure the right messages get through, says Peta Hodge

It is easy to make a case for providing financial education in the workplace. There are dozens of different pieces of research that demonstrate the need for it.

For example, The roadmap to stability – consumer financial education report, published by Axa in November 2009, suggested that almost 25 million people in Britain were suffering from financial anxiety, and 1.4 million took time off work as a result. Likewise, The future of workplace savings research, published by Towers Watson in January 2012, showed that one in 10 private-sector employees has money worries that prevent them from doing their best work.

And the need for workplace financial education is only likely to grow in the coming years. Increasing fragmentation of pension provision, with older members in defined benefit (DB) plans and younger members in defined contribution (DC) schemes is a particular concern, says Helen Boylett-Smith, head of retirement options at Lorica Employee Benefits. “In some instances, employees are not certain about the type of scheme they are a member of,” she adds.

Stuart Bailey, head of national partnerships at the Money Advice Service, also sees a growing need for financial education. “As employers have increasingly developed a more flexible approach to the provision of benefits, there is growing need to ensure that employees are equipped to make the right choices,” he says.

Dramatic increase in education

Encouragingly, employers seem to be up for the challenge. Phil Percival, senior consultant at Towers Watson, says the consultancy’s aforementioned survey suggests the provision of workplace financial education is set to increase dramatically, with 24% of employers offering it now but 46% expecting to do so in the next five years.

Standard Life has been conducting some consumer research around pensions auto-enrolment. Ann Flynn, head of corporate marketing at Standard Life, says this offers some pointers to employers planning a financial education programme. “A lot of the feedback said ‘please keep it simple, do not patronise me, do not try to make it jokey, just tell me it like it is’,” she says.

Of course, there are many ways to deliver financial education: face to face – either individually or in groups; by paper via letters, leaflets, wage slips or posters; by computer via dedicated websites and interactive web tools, live webinars, pre-recorded webcasts, podcasts, e-tutorials, prompts on screensavers and emails; and by mobile phone technology via applications (apps) and text messages.

Most communication programmes will combine a number of delivery methods. Which ones work best for each employer will depend on various factors, including the sector it works in and the job functions of its employees.

For example, cost-efficient, computer-based communications are more likely to suit office-based staff than long-distance freight drivers. But online communication should not be dismissed, even for staff that do not have workplace access to a computer.

Standard Life’s Flynn adds: “That is where posters can be really effective or little business cards with the website address on, because, although employees may not be online at work, how many have smartphones or computers at home?”

Again, the suitability of a particular medium will depend on the exact make-up of the workforce, such as the age demographic – younger employees may be more open to online or mobile phone communications, for example – and the education level of its staff: unskilled workers may be more comfortable with verbal, rather than written, information.

Of course, it is not just the communication medium that needs to be targeted, but the message too. “It is vital to tailor financial education to specific employee groups,” says Lorica’s Boylett-Smith. “Graduates will have a very different set of financial concerns to someone who has been in the workplace for 30 years.”

‘Broad brush’ communication

There is a consensus that ‘broad brush’ communication rarely hits the target. Mark Sheppard, partner at Copperfield Communication, says: “A broad discussion on financial planning basics, for example budgeting, saving and investing, insurance and goal-setting is not the most compelling offer for most people.”

So it can make sense for an organisation to focus its communication effort on a particular event or financial concern.

“The greatest opportunities come in the context of financial benefits and equity compensation due to their very nature,” says Sheppard. “Pensions, share incentive plans (Sips), sharesave, long-term incentive plans (L-tips), restricted shares, performance-based pay or awards, all involve specific points in time when the employee must make a decision that will directly affect their own financial wellbeing.”

The arrival of pensions auto-enrolment later this year is one event around which employers may build a communications campaign, particularly because it will bring into employee benefits provision many, particularly smaller, employers that have never provided such benefits to staff before and so have no experience in communicating these, says Mike Morrison, head of pensions development at Axa Wealth.

“Obviously, employers cannot encourage staff to stay in or opt out, but at least they can explain to them why they are suddenly losing x pounds from their salary,” says Morrison. “It makes sense to have some form of education or online system that points out not just the cost of a pension, but the value – the fact [staff] get tax relief and, ultimately, will end up with a pot of money.”

Auto-enrolment will force employers to communicate in very specific ways about the mechanics of pension scheme membership, says Towers Watson’s Percival. “What these requirements fail to do is really engage employees in pension planning,” he says. “From an employer’s perspective, this brings the risk that the money spent is not appreciated. Workplace financial education can help overcome this by planning the savings in a proper context and helping employees to plan more effectively.”

Auto-enrolment is also raising the profile of workplace financial education more generally, says the Money Advice Service’s Bailey. “Not only should employers provide information to employees about changes to pension arrangements, but set it within the wider context of providing tools and resources to help employees to work out if they can afford the pension contribution and, more importantly, have an awareness of whether they can afford not to join a pension scheme,” he explains.

The need for workplace financial education has probably never been greater.

Financial education on a budget

• The good news for employers planning to embark on a general financial education programme in these straitened times is that much of it can be done fairly cheaply, or even for free.

• The Money Advice Service, for example, provides a range of services, including group seminars, personalised follow-ups, a comprehensive website and various handbooks, free of charge.

• It is currently running a spring clean-themed campaign to tie in with an employer’s end-of-year HR assessments of staff.

• Free information is also available from a number of other sources, including the Life Academy’s Learn about money website.

• The National Association of Pension Funds’ Pensions Force website also offers a range of free services to help employers aid their employees in planning for retirement.

• Online methods of communication can also often be a fairly cost-efficient way of passing on financial messages to large groups of employees.

Tax breaks on pensions advice

• When pensions advice is provided by an employer across its workforce, an employee benefit tax charge is not usually incurred.

• Where an employer pays fees to an external provider for one-to-one sessions, a tax charge would usually arise on the cost of the advice because this represents an employment-related benefit.

• However, if certain conditions are met, since 14 December 2004, the Income Tax (Exemption of Minor Benefits) Regulations have exempted the cost of pensions advice provided in a one-to-one session from a benefits tax charge. These conditions are: similar advice must be offered to all staff; the nature of the advice should not extend beyond pensions into general financial, and tax, advice; and the cost must be no more than £150 per employee per year.

• If the cost of the advice exceeds £150 per employee per annum, the whole amount is taxable, not just the excess over £150.

• More information is available here.

RDR will make education costs more explicit

New rules that come into effect under the retail distribution review (RDR) from 1 January 2013 will change the way some employers pay for some types of financial education. From this date, all independent financial advisers and benefits consultants will be remunerated on a fees rather than a commission basis. Remuneration for financial education will be transparent because commission will no longer be paid for non-specific advisory services.

Helen Boylett-Smith, head of retirement options at Lorica Employee Benefits, says: “Many HR directors will need to write a cheque for the service, or agree it will be deducted from the employee’s fund. This will not be an easy transition or choice for many organisations.”

Read more from the financial education supplement