The gap between employees’ pensions pots and their desired retirement income is widening at an alarming rate, creating an urgent need for workplace financial education.
If you read nothing else, read this:
- Ongoing development modules can help employers track the effectiveness of a financial education programme.
- Financial education can help to combat staff absenteeism and boost productivity.
- An employer must support a financial education programme to ensure its success.
In its Rethink Retirement survey, published in December 2012, financial education provider Wealth at Work found that only 16% of employers believe their employees are making sufficient retirement savings.
In response, many employers are taking steps to ensure their staff are furnished with enough information to manage their finances, with 16% now offering financial education to all staff as a core benefit, and 11% offering it as a voluntary benefit, according to Employee Benefits’ Benefits Research 2013, published in May.
But how can employers measure the impact of their financial education provision?
Feedback forms handed out after financial education sessions can help employers to assess their value.
Alan Page, head of financial planning at Killik Employee Services, says: “Normally, when a programme is put in, it is a course or a series of seminars, or one-to-one [sessions], and it’s usual [for employers] to issue feedback forms.
“But it’s how the questions are framed that determines how valuable that feedback is. If employers ask, ‘Do you feel your knowledge has improved having done the course?’, most people will say yes. So some sort of forced marking mechanism tends to be used.”
Online financial education
Online financial education programmes can make it easier for employers to assess impact, because they typically use a series of tests resulting in scores that can give a good indication of the level of knowledge an employee has gained.
Angus Jones, chief executive Clarity, says: “We offer an online facility that allows continuous education and development, and that way [employers] can track behavioural changes, rather than just instantaneous appreciation of a subject matter.”
Jones advises employers to monitor the impact of their efforts over time, because post-seminar enthusiasm is quite different from staff actually implementing the advice they receive.
“The way to measure it is not necessarily precisely at the moment they do the seminar, but maybe six or 12 months later by having a follow-up to see what habits have changed as a result of that education,” he says.
Programme relevance is also important. This may involve employers segmenting staff according to key events relating to their finances, such as a share scheme maturity date, or a flexible benefits enrolment window. Providing a financial education programme a month before such events, perhaps focused on those specific topics, can help to give employees the information and guidance they need to make informed choices about their future course of action in each situation.
Employers should also be mindful of any workforce issues they can use financial education programmes to tackle, such as high incidence of debt and financial worry.
Money worries can affect employee performance, as can mental health issues, such as stress and depression, which can, in turn, lead to absenteeism. If employers address the core issues with, for example, debt counselling sessions or one-to-ones, they can tackle the root causes and protect their sickness absence rates.
Employee engagement and action is perhaps one of the best measures of success for financial education programmes. For example, Lorica Employee Benefits measures the impact of a programme by monitoring employees who have made educated decisions after attending.
Tobin Murphy-Coles, commercial director at Lorica Employee Benefits, says: “It’s people who have made a different investment in their pension scheme, for example.
“It’s people who have accessed a corporate individual savings account (Isa) and gone a different route, or people who are looking to salary sacrifice their bonus into their pension scheme rather than take it as cash. Employers just want to make sure employees have all the necessary tools at their disposal to retire at a suitable age.”
Sean McSweeney, principal consultant at Chase De Vere, says employers can also look at whether employees make changes to their pension contribution rate. “A good measure is not how many people join a scheme, but how many people pay more than the minimum contributions required,” he says.
“That’s a really powerful measurement tool. One of the key things, with auto-enrolment coming along, is whether people can afford to retire.
“Financial education is very much about making people understand where they are in terms of retirement planning, and getting them to a position where they are able to retire.”
All successful programmes are planned, set up and communicated to staff well in advance of scheduled financial education sessions, and then have a follow-up session to evaluate their impact on employees.
But before starting a programme, employers need to establish clearly what their objectives are. This will enable them to measure their efforts against the course of action that employees take.
Jones says: “The most successful programmes are where employers integrate financial education into a total benefits communication strategy. They say, ‘we’ve got all of these benefits; are we really projecting them to the employees? Not only so that they understand it today, but that they understand why they should stay employed with us tomorrow and through to retirement.’”
For a programme to have an impact on employee take-up, employers must demonstrate that they have invested in it, and are committed to it. It should not be seen as just a tick-box exercise or a case of ‘they’re doing it, so will we’.
Jones adds: “The most successful programmes are those where [employers] are thinking about it as a whole rather than ticking boxes, and sponsoring some of the critical mass themselves. Make sure the employer is sponsoring at certain levels, and maybe giving some time to every new joiner, everyone who is 10 years from retiring, 12 months from retiring, or who has reached certain life stages.”
Case study: Novae Group boosts staff engagement
When making changes to its pension scheme, insurance underwriter Novae Group noticed that staff engagement with its benefits was very low.
In 2011, the organisation changed from a trust-based pension to a group personal pension and arranged for all members of the scheme to have one-to-one financial education meetings.
John Renz, director of HR, says: “First of all, we wanted to explain the nature of those changes, but also essentially to put people’s personal positions through the car wash.
“It then became apparent that there are broader and bigger issues because people were not fully appreciative of the economic value of their total package, and were also not managing it to the best effect in terms of their tax planning and future wealth management.”
Novae implemented a wealth management programme with Lorica Consulting, driven by the pension change, and also relaunched its total reward statements in 2012. “The real purpose of this was to help people understand the full value of their benefits, so we hope it will also improve levels of engagement, both in the process and in the business,” says Renz.
“We want to differentiate much more readily between high-performing individuals and less-high-performing individuals. A starting point for that is to make everybody understand what the proposition is in our company.”
Novae monitors employees at an aggregate level, measuring how many visit the pension website and how many actively use it. It is tracking whether they are, for example, changing their investment choices, or altering what they do with their equity, which forms part of the remuneration for its senior staff.
“We have had a very low participation level in the past of [employees] going onto their benefits page, the HR system or the pensions website,” says Renz. “That has gone up significantly.”
Stephen Bevan: Under-pressure staff need employers’ support
Money worries are now higher on working people’s list of concerns than at any time in living memory. With real wages almost stagnant during the downturn and with inflation, job loss and job insecurity eating into disposable income and financial stability, the time to step up employer support for financially strapped employees is long overdue.
We see in our research the serious effects of money worries on employee attendance, performance and wellbeing. In a study published in March 2013 for the Bank Workers Charity, Bank on your people, in partnership with Robertson Cooper and The Work Foundation, we found 31% of bank workers said they were struggling to keep up with loan repayments and 41% said they were concerned about their financial security.
And in a study of insurance company workers,Why do employees come to work when ill? published by The Work Foundation and Axa PPP Healthcare in April 2010, we found that financial worries were a major contributor to presenteeism (going to work when ill) and lost productivity.
Investing in workplace financial education has to be part of the answer. Many larger organisations have, for many years, provided pre-retirement courses for employees within five years of retirement, helping them with financial planning and other skills.
Yet, in many cases today, it is people much earlier in their career who need basic support with budgeting, how to manage competing debts, how to make pension provision, and so on.
A couple of years ago, I spoke to a medium-sized firm with a young workforce that hires a semi-retired financial adviser to visit its headquarters once every couple of months to offer financial advice to anyone who wants it. This so-called ‘Money Dad’ rapidly became one of the most popular, well-used and cost-effective perks the employer had ever initiated.
But with over 70% of the UK workforce (according to the Chartered Institute of Personnel and Development’s Summer 2012 Employee Outlook focus, August 2012) currently getting no access to financial advice through their employer, the more we can do to support employees with money worries, the better for business.
Stephen Bevan is director of the Centre for Workforce Effectiveness at The Work Foundation