As an older millennial, I consider myself rather fortunate. Having started my career a few years before the 2008 financial crisis, I was able to build some career momentum and make some progress before its effects. Many millennials, however, and in particular those who entered the workforce sometime after 2008, may reasonably claim to be the new ‘lost generation.’ Likely to be carrying significant debt from student loans, following the sharp 2012 tuition fee increase and unlikely to be on the housing ladder (and less likely to have any significant savings to speak of), this generation must have been wondering what they’ve done wrong – and that was before COVID-19 struck.
The current pandemic we are living through will almost certainly have a profound impact on all of our lives. With the UK economy predicted to shrink by 10.2% this year, and unemployment predicted to treble to three million, the millennial generation should be entering their peak earning years; however for many, that’s going to be far from the reality, and instead this latest crisis will serve as another significant blow. With millennials making up the biggest generational workforce in the UK, employers will need to be cognisant of this point, and ask themselves ‘are our benefit programmes fit for purpose’?
Much has already been done to encourage an increase in pension saving, but this will be of little use in the short to medium term, for a generation who are struggling to buy a house or accumulate any meaningful savings to achieve their life goals. Traditional benefits such as private health care and other insurance and protection benefits – whilst of huge value to employees in times of need – may not be of primary concern as they try and navigate through this period of economic uncertainty. Instead, companies will need to find cost-effective ways to help employees generate accessible savings, thus improving their financial wellbeing, and therefore their mental wellbeing, and ultimately improving individual performance and engagement levels. After all: happy employees, as revealed by an extensive 2019 study by Oxford University, are 13% more productive!
A readymade solution
Employee share schemes are an ideal mechanism to support employees with their short to medium term savings needs and can help to build some much-needed financial resilience in a time of economic fragility. The basic concept of employees being directly invested in the future success of their company (by owning shares), is one that is difficult to argue against, and the benefits in terms of engagement levels and staff retention are already well understood.
Share schemes are generally associated with larger, usually listed organisations; that doesn’t necessarily need to be the case and they can be effective solutions for any organisation, even if privately owned. The UK’s tax approved all-employee Share Incentive Plan (‘SIP’) and Save As You Earn (‘SAYE’) schemes are well established and celebrate their respective 20th and 40th anniversaries this year. Both have proved hugely popular, which isn’t surprising when considering that in the 2018-19 tax year, employees benefited from a £470m combined total of Income Tax and National Insurance relief. While both plans differ greatly in how the operate, they deliver engagement (through a vested interest in company performance), retention (through loss of benefit from leaving) and ultimately a practical savings route for employees that doesn’t demand a lot of willpower, as contributions are taken direct from salary. This generates meaningful benefits over a period of 3 or 5 years.
Communication and technology
For these plans to be effective in improving the financial resilience of a company’s workforce, they need to have a good take-up. To achieve this, clear communication and easy to use technology are vital – even more so with the inevitable lasting increase in working from home arrangements. Communications should provide employees with the information they need to make their personal decision on whether to participate, including any potential risks. In a world where people are inundated with emails, finding a way to make your communications stand out and be easily and quickly digestible is important. Short explanatory videos and visualisations are a great way to achieve this.
It almost goes without saying these days, but employees should be able to engage with and transact on their share plans entirely online, at every stage from signing up to transacting on their options/shares. Ideally this should be possible from any mobile device.
Always room for improvement
Like anything though, these HMRC-approved plans need to adapt to the changing environment to stay relevant, and to have the required impact for employers and employees alike. Only recently, in 2018, the SAYE contribution rules were changed to allow all SAYE members (not just those on maternity or parental leave), to delay contributions for up to 12 months. For those with pressing financial concerns, SAYE schemes can be cancelled and the savings refunded immediately. No doubt this change will be providing very welcomed flexibility during the current pandemic.
The SIP already had contribution stop/start flexibility built into its rules, and instead it is the 5-year maturity period that is getting the attention from Proshare, the UK’s leading policy influencers on broad-based employee share ownership. With millennial and generation Z populations less likely to commit to their employers longer term, coupled with the concerns of financial resilience in these troubled times, being able to reap the full tax benefits of a SIP in just 3 years would certainly be a welcome change.
Financial resilience
As an employee share plans practitioner, I’m obviously biased. But to my mind employee share ownership is a solution to cure many problems, both for employers and employees – aligning the interests of both parties. Perhaps in the wake of the COVID-19 pandemic, as we establish the true impact on the economy, individuals and families, share plans such as SAYE and SIP (and indeed other broad-based share ownership vehicles) will increasingly be seen as go-to solutions to support employees’ financial resilience.