Covid-19 continues to affect most walks of life, one of the most obvious being the financial impact on UK workers. With millions furloughed and an increasing number out of work the pandemic has forced households everywhere to confront their finances and has left employees who have little or no savings in a precarious position.
This aspect of lockdown has brought the issue of financial resilience into the spotlight and has made more employers think about what can be done to improve workers’ short to medium-term savings. Fortunately, businesses have a great opportunity to make a big difference here by helping staff improve their overall financial wellbeing.
Rainy days
Employers have made huge progress talking to employees about money already, since auto-enrolment legislation has compelled them to engage with their workers about pensions. According to the Department for Work and Pensions (DWP), this has successfully led to around nine million more people saving for their long-term future (although 12 million adults are still not saving adequately for retirement).
Saving for retirement is essential, but Covid-19 has highlighted the importance of financial resilience in the here and now, not just the long-term. Unfortunately, millions in the UK currently have little or no short-term savings for a rainy day. In fact, according to the FCA, 43% of all UK adults have less than £2,000 in savings and 13% do not have anything put away.
For these people, furlough or redundancy can be devastating – and things could soon get worse for many of them. According to the ONS, paid employment in Britain has already fallen by almost 650,000 between March and June. And now, with the government starting to withdraw its furlough scheme, many businesses aren’t yet back in a stable enough position to pick up the baton. As a result, the British Chambers of Commerce warns that 29% of businesses are planning to reduce their headcount over the coming months as government support recedes.
This data shows that many households are not financially ready for the economic downturn that many are predicting. With little in savings, it’s no surprise that the ONS estimates a quarter of households would not be able to cope with a 25% reduction in their income for longer than three months.
The elephant in the room
It’s also important to acknowledge that financial woes affect more than just an employee’s bank balance; concerns about money are a prominent contributor to poor mental health. According to the Money and Mental Health Policy Institute, 86% of people with mental health problems say their financial situation had had a negative impact on their condition.
To make matters worse, many employees tend to suffer in silence. According to a Mind survey on linking work with stress, 19% of respondents had taken a sick day because of stress, but 90% of those respondents cited a different reason for their absence as they did not want to admit the main cause was stress. This makes it difficult for employers to identify who is struggling and, to be on the front foot, they need to be intrinsically aware of the negative health impacts that come with redundancy and money troubles. The Mind survey found that the effects of stress on health was stark; 28% used smoking as a coping mechanism, while 15% took antidepressants and 16% over the counter sleeping aids, all impacting physical, mental and emotional health.
The taboo around mental health is thankfully fading, but most employees still don’t like to talk about money, let alone how stressed and anxious it makes them feel. As such, more needs to be done to improve employee confidence in dealing with financial issues, in much the same way that employers have normalised retirement saving through auto-enrolment.
What can be done?
There are a wide range of ways that employers can support their employees ranging from encouragement and education to incentivisation and enablement. Encouragement and education are key foundations of improving financial wellbeing. The Money and Pension Service / Money Advice Service has free support available for employers and its Talk Money Week (9th – 13th November 2020) is an excellent way to introduce the subject in the workplace. Commercial options include dedicated financial wellbeing portals and proactive solutions which provide targeted content to employees based on demographics and analytics. Consideration can also be given to the inclusion of foundation skills such as numeracy in wider Learning and Development plans.
Workplace loans and pay advance solutions can be effective in helping employees who have problem debt or who are struggling with short-term cash flow challenges, but one of the cornerstones of financial resilience is building up accessible savings. Workplace savings accounts and ISAs can help employees build a savings habit by diverting money directly from payroll – the most convenient way of turning pay day into ‘save day’.
Where practical, employers can incentivise short-term saving by offering to top up savings contributions to build resilience more quickly or help meet other financial goals rather than just incentivising retirement saving.
The Government is borrowing a huge amount to deal with the pandemic and will need to rebalance this at some point. This could lead the way to pension tax reform. If this goes hand in hand with increased flexibility of UK pensions to provide early access to these funds in cases of financial hardship it could form a solid part of people’s financial resilience plans. This would allow them to access their retirement savings when faced with unavoidable challenges in the near term.
Without a doubt, this is a difficult time for businesses everywhere, especially those that may have to decrease their workforce. However, by encouraging better financial confidence, and helping people engage with their own finances, employers can play a vital role in their employees’ security and wellbeing, regardless of what the future holds.
