By Lee ColesHead of life after work, Jelf Employee Benefits
There is a palpable need for education, yet the same old familiar mistakes which were present prior to Pension Freedom are being repeated now.
So where are employers going wrong?
The ostrich approach
Not providing any form of financial education is a path chosen by many employers, either because the subject has been considered and discounted, or simply ignored. The principal reasons for rejection are time and cost, which assumes financial education doesn’t save a business time or money. Regardless of the size of a workforce, individual employees can be a very different prospect if they are financially stressed; whether that’s due to spiralling debt, trying to get on the property ladder or working out how much tax they should or should not be paying after cashing in their pension. It is important to keep in mind the defensive, risk-management benefits financial education can bring if delivered well.
Only time will tell how valuable an audit trail of education support might be. Without any degree of control, employers will have to rely on their employees taking direction from a natural go-to network of the press, friends and family. I predict a likelihood of mixed results, at best.
Education focussed solely on pensions
It makes sense that there should be some education related to a complex topic which confuses some and mystifies other. There are plenty of choices to make, even more so now, and lots to get wrong. What we must not forget is that a pension is obviously only one aspect of any individual’s finances. It certainly needs attention, but employees may have greater concerns that are front of mind. These could be debts, budgeting, mortgages or what happens to the family if they die or suffer from ill health; that’s before we even consider the high-net-worth employees with more sophisticated needs.
Part of the problem here is that one of the readily available sources of workplace education is the pension scheme provider. Most will typically offer literature and tools to support people in their decision making, and may even offer gratis face-to-face engagement for larger employers. There are merits to this, of course, but the accompanying limitations should also not be forgotten.
Pension scheme providers will generally focus on what they offer and their strengths rather than weaknesses; this can be problematic for those approaching retirement given that they may not get the best deal or access to all of the freedom options available. Also, the focus will inevitably be about pensions, given that this is there where they have expertise.
It’s important to think of a workforce as a group of individuals with individual needs.
Education meeting the needs of the few rather than the many
Employers often seek out financial education providers to fix a specific problem; perhaps to support a redundancy exercise or a group of employees all nearing retirement. The truth of the matter is that every employee will have their own financial worries but we don’t yet have that cultural belief that everyone should be trained to make better financial decisions.
The consequence is that often it is those who shout the loudest or hold the purse strings that determine what support is provided, not necessarily those with the greatest need. As an example, we have seen an upsurge in people attending retirement workshops in response to Pension Freedom, but less demand for support than we expected for those who are 50-60. Employers are making the link between Pension Freedom and people stopping work, but have missed the point regarding employees who will look to access their pensions to meet shorter-term needs and carry on working.
I would advocate career-long education, but often younger populations get overlooked because they don’t have the voice or the influence. Good financial planning, particularly for those who aren’t well paid, starts with getting into good financial habits; this is true regardless of age, but the sooner the good habits start the better.
Education designed to sell rather than educate
The aforementioned pension provider may not be looking to sell, per se, but will certainly be putting a positive spin on their product. No surprise there and I don’t strongly object to this, as long as employees are clear on their choices and are trained on how to generate better outcomes for themselves.
Any education which is delivered free of charge warrants further scrutinisation. Often delivered by financial advice firms, or on behalf of such firms, there is, however, clearly a cost to providing such a service. The only way costs can be recovered is if further products or services are sold. This goes against the purist’s approach: that the real goal of financial education should be to train people to be better with money. They should be trained to better understand their own needs and preferences, rather than be driven to particular products or services which may or may not be the best thing for them. It is important to be able to point employees in the direction of where they can get help with products or advice but that should not be the main objective.
I should also make the point that the delivery of financial advice is a very specific skill; a very different skills set to delivering engaging and entertaining workplace education to a group of employees. In close to 25 years in the industry, I have only come across a handful of people who can do both well.
Assuming people will retire when they can afford to
Financial readiness for retirement is only part of the game but often dominates education on the subject. The switch from employment to retirement is a massive change of lifestyle which should not be underestimated. The impact such a decision has on an individual’s relationships, drive, self-worth and sense of purpose can lead to opting out of retirement altogether. This can lead to workforce stagnation. Education focussed on helping someone to plan for their life after work can offer the impetus and confidence needed to make the leap.
By avoiding these pitfalls an employer can build towards best practice. I would advocate a combination of:
1) A series of financial-planning workshops which train employees on how to be better with their money; the series inevitably needs to cover a range of topics so employees can get help with what is important to them.
2) If pensions are the focus, individual clinics where employees can review all their current choices are a must. It’s not just about contribution level, but investment choice, selected retirement age, and the likely option/s which will be used when they come to take their pension savings. The use of target-focussed modellers is recommended. Needless to say, clinics are useful regardless of the topic under discussion.
3) A lifestyle focussed workshop for those who are within their final 3 years prior to retirement. It is hard to know what someone will need and when, if they are not clear what their life is going to look like going forward.
This may be too big a step for some, but you can certainly score yourself against the mistakes highlighted. In the meantime, I will continue to spread the word.
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