The Covid-19 pandemic has catapulted the UK into a sharp economic downturn, in what could end up being the deepest recession in 300 years. Many busine
The Covid-19 pandemic has catapulted the UK into a sharp economic downturn, in what could end up being the deepest recession in 300 years. Many businesses were forced to adopt widespread homeworking virtually overnight or temporarily shut up shop, leaving employees facing mounting worries about their financial security.
According to the Mental Health Foundation, a third of UK adults are worried about debt or how to pay bills. For many employees, the worst is yet to come, with a study by the British Chamber of Commerce revealing that almost a third of businesses plan to reduce their headcount over the next few months as the furlough scheme winds to a close.
With money woes not only affecting people’s living standards, but also their mental and physical wellbeing, it’s vital that employers work with their staff to educate them about the importance of building up short-term financial resilience. We caught up with Mark Pemberthy, Head of DC & Wealth, Buck to get his view.
The introduction of auto-enrolment, which has seen over 10 million employees successfully save into a workplace pension, has helped large swathes of the working population take action about saving for their retirement. But while pensions are undoubtedly an essential part of saving for the future, Covid-19 has highlighted the urgent need for shorter-term savings as well.
According to stats from the ONS, a quarter of households would not have enough savings to cover a 25% fall in their household income for a period of three months, while a separate study found that a third (33%) of UK adults do not save money regularly and 7% have no savings at all.
These pre-COVID figures provide a worrying snapshot of the day-to-day financial insecurity many individuals live with, and reveal that millions of employees are at risk of falling into real financial difficulty if they were to experience a pay cut or job loss – a risk that has been brought into sharp focus by the pandemic.
Mental health pressure
While money worries are not a new phenomenon, there is growing evidence that people who are struggling financially are more likely to suffer from poor mental health, which can have a major impact on their work. In fact, according to the Money and Mental Health Policy Institute, 86% of people with mental health problems said that their financial situation had a negative impact on their condition.
To make matters worse, many employees tend to suffer in silence. While the issue of mental health has thankfully risen up the business agenda in recent years, there is still more to be done. Employers need to be aware of the physical and mental health impacts that come with pay reductions or wider money troubles – which may be from household circumstances completely removed from the workplace – and offer the right support and help.
Feeling worried about finances can affect an employee’s ability to do their job well by disrupting their sleep, their concentration levels, motivation and productivity, all of which can have a negative impact on the company’s bottom line – just when employers can least afford any inefficiency. According to a study, over a third of employees say that their financial situation negatively affects their mental health.
Taking steps to address the issue of financial wellbeing will not only benefit employees, but will also have a positive impact on the overall business. It’s therefore important that line managers are trained to spot the signs of poor mental health and show empathy and sensitivity towards employees struggling financially. Employee Assistance Programmes can often help here, as they are a useful way to ensure that employees can access the support they need confidentially.
Improve financial resilience
Until now, employer conversations around saving have largely focused on pensions, with employees increasingly viewing the company pension scheme as a key part of the benefit offering, rather than just a compliance obligation.
There is a chance the government may provide greater flexibility around pensions, following the introduction of pension freedoms and the growing need for people to access their savings in times of financial hardship, but for now employees will need to make use of everyday savings products and budgeting tools to boost their financial resilience.
One of the best ways for employers to highlight the importance of financial wellbeing is through education. For example, employers can widen the topics covered by their usual benefit communication, or learning and development initiatives, to include topics like money management, budgeting and debt management. This would help to normalise good financial behaviours like looking at spending and saving habits, but also provide the tools they need to build their financial confidence. Employers can also go one step further by putting in place workplace savings solutions so employees can increase their short-term savings directly from payroll.
It is undoubtedly a difficult time for businesses of all sizes, but especially for those who may have to let some of their staff go in the weeks and months ahead. However, by encouraging better financial education and supporting employees to actively engage with their finances, employers can better prepare their workforce for the future, for the benefit of employees and the employer alike.