Employers have a vested interest in ensuring their employees are fit, healthy and not overstressed. Private medical insurance, to deal with the physical health of employees and their dependents, is pretty standard. Much has been done in recent years in terms of mental health. Now more employers are looking to see what can be done for employees around financial wellbeing.
Last year’s survey by Neyber, the workplace loan provider suggested a third of employees cite financial worries as their biggest concern. Financial worries say the report are the biggest issue for workers under age 55, after age 55 health becomes the biggest concern.
In a speech last year the FCA’s Jonathan Davidson said “16m people in the UK have savings of less than £100”. The FCA’s 16/17 annual report and accounts says “61% of people in the UK have at least one consumer credit product, with 26% of them having an outstanding debt on that product. We estimate that two million credit cardholders have persistent levels of debt and a further two million cardholders were in arrears or defaulted on payments”
With large numbers of people failing to put aside rainy day money, and over reliant on credit, it is no surprise that some people are on the edge of their finances unable to do more than pay the minimum payments whilst other are drifting into debt through slow repayment.
With uncertainty over how Brexit will affect the UK, and in an environment where wages have been slow to rise, yet the cost of living keeps going up and interest rate increases are on the horizon, these issues may become even more widespread. So this is a good time for employers to seize the opportunity to put employee wellbeing at the top of their agenda.
What can employers do to help their employees caught up in a spiral of debt and stressed as a result without actually paying them more? One option is to provide access to financial education, savings solutions and affordable loans.
Neyber’s survey says 48% of employees regularly borrow money to meet basic financial needs. Where their credit rating is not good, or their income fluctuates and lacks consistency, they may turn to loan sharks or payday lenders who will charge very high rates of interest (rates of over 1,000% per annum are not unusual). Accordingly, even if the money loan is paid back are likely to only make the employees position worse in the long term.
As employers are increasingly looking to improve their employee benefits package and wanting to include something for everyone, the more rounded the benefits package the better. Financial support as part of the benefits package looks like a win-win for an employer. Financially stressed employees may have a bad attendance record, but even if they turn up for work then with their mind on financial worries they are likely to be less productive.
Workplace loan providers will not be looking at the credit rating of individual members of staff as the repayments will come from salary deductions by the employer. Much like a season ticket loan that many employers already operate. Interest rates are typically in single figures, so while employees with strong credit ratings may be able to access cheaper forms of credit, the rates are manageable and considerably lower than those offered by less scrupulous lenders.
For those already in debt, the ability to consolidate their loans at an acceptable rate of interest could transform their day to day financial position and as a result be far less financially stressed.
It’s true however, that those in debt are unlikely to be paying meaningful amounts of money into workplace pensions and other savings. So even securing a loan via flex may not be enough to make them a habitual saver. Employers usually find pension benefits form the largest part of their benefits package. With auto enrolment there are minimum levels of contribution that an employer must make into a workplace pension. Those employers paying more than the statutory minimum could consider enabling employees to choose to divert part of what would otherwise have gone into their pension into a shorter term saving vehicle such as a workplace ISA or Lifetime ISA. This would enable the pension budget to support wider financial goals than purely long term saving for retirement. True that would have an effect on the employees long term saving but breaking out of financial debt and building a saving habit now is much more likely in the long run to see employees end up saving more for their retirement.
Employers are in a good position to help financially stressed employees take back control over their finances. That would be good for the employees and good for productivity and the employer. Of course payday lenders may not like it!