A lack of across the board financial education is failing to close the employee savings gap, according to a new report.
The Lifetime Savings Challenge Report 2017, which seeks to understand how employees are saving, where they need help, and the level of support available, reveals that there is a distinct savings challenge that needs to be addressed. A third of UK employees are saving less than £50 a month, which includes one in five who admit to not saving anything at all.
A lack of understanding amongst employees is clear. This is a real concern against a backdrop of radical change in the pensions and savings industry, as well as rock bottom interest rates. A lack of confidence when it comes to saving effectively into the right products for each individuals’ circumstances is also evident, with only two fifths of employees confident in their ability to choose the right financial product to help them achieve their savings ambitions. For example, while more than half of those aged 18-34 see either saving for retirement or buying a house as their main savings priorities, of those eligible to save via a Lifetime ISA (LISA), 42 per cent don’t do so because they feel that they don’t know enough about the product.
In spite of the fact that around two thirds of employers think the responsibility for improving employees’ financial wellbeing lies jointly with them and their employees, employers are falling short. Just half of UK employers offer some form of financial education, with 20 per cent planning to introduce it in the next twelve months.
Despite this, three quarters of employees say that their employer has failed to provide any financial education to help them understand what savings choices exist and what’s best for them. It is clear that there is a real need to examine the quality and scope of the financial education that is provided, as well as to look to see what more can be done.
When it’s available in the right format, it works. More than a third of employees who had received financial education said that it had been useful in guiding their immediate, medium, and long-term saving decisions.
Jeanette Makings, Head of Financial Education at Close Brothers said: “There is a looming savings crisis. Not only are people failing to save enough, but many simply don’t understand the different savings choices available or how to evaluate which ones are best for them. Worse than that, the industry is not geared up to help them. Product providers can explain their own products, and comparison websites may be helpful to compare products of the same type, but there are very few providers able to help individuals look across the savings landscape in its entirety and choose what’s best for them.
“Employers have a key role to play in solving this Lifetime Savings Challenge, but despite them seeing it as their responsibility to enhance the financial education of their workforce, far too few are adequately addressing the issue amongst their employees. If we want employers to be adding real value, their efforts need to reflect the challenges that individual employees are facing at each stage of life.
“A huge part of the challenge therefore, is to encourage the provision of good financial education in the workplace that looks at savings as a whole and the different options available. Employers are hugely trusted and perfectly placed to close this knowledge gap. By working closely with them to develop impactful education, we can help employees secure a solid financial future for both themselves and their families.”
Nigel Peaple, Deputy Director of DC, Lifetime Savings and Research at the PLSA said: “Regular income from full-time employment is the building block for many people’s financial stability so it makes sense that they would also look to their employers for support with financial education, pensions and lifetime saving. Today’s report highlights not only the low levels of saving amongst the workforce but also their interest and desire to do more.
“It also raises important questions about the role employers can play in helping employees to be financially prepared for retirement. It is encouraging to see that almost two thirds of employers believe that it is their responsibility to help employees to make the most of the benefits packages they offer. We hope that companies will feel able to help their employees reach their savings aspirations.”