Money Worries?

Retirement, Financial Wellbeing, and How Your Employer Can Help.

Everyone has their own idea of what retirement looks like. But whether that’s spending more time with family, taking up new hobbies, travelling the world, or even just giving up the 9 ‘til 5, saving for retirement is essential.

This isn’t just a straightforward matter of paying into a pension – and it certainly isn’t a problem to consider later in life. For many, pensions can seem extremely complex and confusing, and misinformation is rife, so you need to ensure you’re educated about how pensions work and what you’re entitled to. However, by taking care of your overall financial wellbeing, you can set yourself up for a long retirement and a more enjoyable working life.

Because this is Pension Awareness Week, we’re exploring how both employees and employers can start looking after financial wellbeing, so you can get on your way to the lifestyle and retirement you deserve.

Why is it More Important Than Ever to Start Saving Early?

As a nation, we’re living for longer than we ever have. In many ways, this is positive – but it also means we have an aging population, and pensions need to stretch even further. In today’s world, retirement can last for 30 years or more. While this gives you more time to enjoy doing the things you love, the State Pension wasn’t designed to last so long, and there are now nearly as many people taking money out of the State Pension pot as there are people paying into it.

This is worryingly unsustainable, and the minimum age for claiming a state pension continues to rise. Currently standing at 65 years, it will rise to 66 by the end of this year and then further to 68; it’s expected that someone born today will have a state pension age between 75 and 80.

In fact, an estimated 12 million people are not saving enough for their retirement. Even those who are auto-enrolled could find it’s too little, too late, with a recent survey finding 65% of people expect to partially or fully fund retirement by continuing to work.

This generation, more than any other, needs to be engaged with the responsibility of saving and planning for a long, happy retirement. By taking proper care of your overall financial wellbeing, including building a healthy pension pot, you could be able to start claiming your pension as early as age 55 – although this is rising to 57.

What is Financial Wellbeing, and Why is it Important?

Financial wellbeing can mean different things to different people, but at its core it means having enough money to meet your needs now and in the future; being financially prepared for the unexpected; and having the finances to enjoy the things you love.

The importance of financial wellbeing goes beyond just retirement. It will impact all aspects of your life: where you live, how you travel, the luxuries you can enjoy, and ultimately the job you do. If your financial wellbeing is poor, you’re more likely to feel trapped in a job you don’t enjoy or need to work longer hours, which can often result in issues such as sleep deprivation, anxiety, and burnout. In fact, you’re 4 times more likely to suffer from mental health problems if you have financial difficulties.

For employers, taking care of both the financial and mental wellbeing of your workforce can be business critical. 1 in 10 people find it hard to concentrate at work due to money worries which, paired with other problems such as burnout, can have a damaging impact on productivity. In the context of COVID-19, these problems are even more prevalent – and businesses should be more proactive than ever in supporting the wellbeing of their workforce at this extremely difficult time.

What Can Employers Do to Support Financial Wellbeing?

Education about financial wellbeing should start as early as possible, with Financial Literacy now on the school curriculum after years of campaigning. However, there’s still a big gap to be filled, and most adults have received no formal education about pensions, savings, mortgages or credit cards.

The responsibility to plug this gap sits with employers, with many now recognising the impact of financial, mental and physical health on their people and their business. This is a hugely positive step, with 82% of employees saying they trust their employer to provide financial advice.

Fortunately, there are several things employers can do to support financial wellbeing at a relatively low cost.

First and foremost, you need to talk about money. The stigma around money needs to change, and employers have the power to address the elephant in the room: you could provide access to financial advisors, support financial education, or ensure your workforce know where they can find help with debt and budgeting. Employees are bound to have questions about things like taxes, pensions, mortgages, wills and more – while some of these areas may not be directly linked to the workplace, employers who provide information and support around these areas will help employees achieve the financial peace of mind they need to do their best work.

In addition to education, there are a number of schemes you could introduce to support employees: discount schemes to help them save money; salary sacrifice programmes to maximise tax savings and take-home pay; access to affordable loans for debt consolidation (taken straight from pay); or workplace savings such as ISAs, to name a few. The list of options is endless, and the challenge for employers is finding the right types of support to suit their workforce.

What Can Individuals Do To Plan for the Future?

The key to financial wellbeing is budgeting, staying in control of day-to-day spending, and expecting the unexpected. Everyone should understand how to organise their finances, including a strong awareness of their own income and outgoings.

While many of us will plan for short and long term goals, such as holidays, weddings, or house deposits, too few people are prepared for the unexpected – such as illness, the loss of a partner, or redundancy.

There’s no universal solution to achieving financial wellbeing, and everyone will have their own needs and requirements. But, as a guide, having 3-6 months wages in savings can go a long way to providing the additional security you may need.

As a first step, you should understand your current situation – including everything from pensions and life insurance to mortgages and credit cards. Once you’ve established a firm understanding of these areas, you should consider your financial plan. How much do you spend? What is the worst case scenario? How much more do you need for retirement? These questions might not be straightforward to answer, but they’re essential to understanding what needs to be done.

Finally, don’t bury your head in the sand. Financial problems are highly unlikely to go away on their own – and when it comes to retirement, you may not even realise the problem exists until you really examine your finances. Seek out information and advice, and take control of your finances.

It’s Never a Bad Time to Start Preparing for the Future

While these issues have been prevalent for a long time, the outbreak of COVID-19 has undoubtedly brought their importance to the forefront. This year, the UK has seen widespread redundancies as we officially entered a recession – and a worrying 8.6 million people have seen their income reduced in the past few months.

Unfortunately, we’re far from being out of the woods. More people are likely to lose their jobs in the months ahead, particularly with furlough schemes coming to an end, and many people are now more worried about their financial wellbeing than their physical or mental health.

But that doesn’t mean you should stop paying into your pension, even though it may seem like a simple way to save money at a time of financial difficulty. Of course, everyone will have their own unique circumstances, but stopping pension contributions should be a last resort.

Every ￡100 you save today could potentially* be worth ￡500 - ￡1,000 by the time you retire. While you may be tempted to save that ￡100 during a recession, your future self will thank you for a longer, more enjoyable retirement when the time comes.

*This assumes your employer also make a contribution to your scheme. Pensions are a long term investment and the performance of investments cannot be guaranteed.