How Employee Financial Wellbeing Affects Your Bottom Line
The coronavirus pandemic has meant unprecedented challenges and uncertainty for the vast majority of the world. Confronted with concerns about their health and safety, many people self-isolated at home, wondering how long the pandemic could possibly last.
But what began as a major global health crisis is also delivering a financial reality-check for individuals, especially those worried about future employment. In the U.S., the pandemic forced 3 in 10 people to decrease or stop contributing to retirement plans. In the U.K., withdrawals from retirement accounts are up. In Asia, building long-term savings was rated the top concern of three-quarters of attendees at Aon’s recent Asia Insights Series virtual conference. Such stress about financial matters can affect an employee’s performance and productivity.
With much of the workforce suddenly finding themselves working from home last year, digital transformation quickly became a priority for companies large and small. In this environment, another need came sharply into focus: fit-for-purpose employee benefit programs and a personalized paperless experience for all employees.
“For too long, companies have taken a one-dimensional approach to assessing employee needs. This often led to untargeted spend and an undervalued one-size-fits-all approach,” Ashley Palmer, Partner & Actuary, Regional Head of Retirement & Investment – Asia, Aon, explains. “To avoid this, employers need to consider the immediacy of employee needs and the overall awareness levels of individuals about these needs. The final piece is to efficiently deliver a personalized, integrated digital employee experience.”
An employee’s income and needs fluctuate with age and life events. Salary typically increases with work experience and promotions then dips after retirement, while savings fluctuate with periods of investment volatility. On the flip side, lifestyle spending also increases with age, as do health risks, with more activity-related injuries during the younger years and chronic conditions emerging later in life due to poor diet and inactivity.
Unexpected needs may also arise due to events such as serious illness, divorce, redundancy, civil unrest or a pandemic. This can lead to financial stress that can have a serious impact on long-term wellbeing, made worse by stay-at-home orders, social distancing and increased online spending.
It may come as little surprise that, with the ongoing pandemic, building long-term savings was rated the top concern of attendees at Aon’s recent Asia Insights Series virtual conference. This was followed by keeping well and active, concerns about job security, elderly care and building an emergency savings fund.
According to findings from a live poll at the Aon Insights Series 2020: Asia, the top 5 concerns of the minds of employees are:
- Retirement savings
- Job security
- Economic outlook
Concerns about building enough savings for retirement weighed heavily on the minds of nearly three-quarters of respondents. This is consistent with a 2018 OECD study, which revealed a significant retirement savings gap, even for average earners, across the Asia Pacific region, including Thailand, Japan, Australia, New Zealand, Hong Kong, South Korea and Singapore [especially for those without Central Provident Fund (CPF) access].
“It was unsurprising to see ‘building an emergency savings fund’ in the top five needs, given the continuing uncertainties of the pandemic and concerns for many around job and income security,” Palmer comments. “Money is clearly a driving concern, especially as the investment and economic outlook remain highly uncertain given geopolitical tensions and high government debt levels – all exacerbated by the ongoing pandemic.”
Helping employees adjust to the new normal
Palmer says the key to anticipating future employee needs is understanding your workforce through data – not relying on peer-firm benchmarking – to identify their long-term wellbeing needs, financial resilience and retirement readiness. One-size-fits-all benefit programs were the traditional norm. However, employee needs are neither static nor linear, and they vary based on geography, social safety net and cultural diversity.
When it comes to curating employee benefit programs, employers need to identify the health-wealth gaps where an employee is underprepared for a future life event affecting themselves or their close family. Examples of such events include a chronic or critical health condition, holding insufficient diversified savings, redundancy and divorce.
Health and wealth are interrelated and impacted. Identifying and reducing health-wealth gaps drives resilience.
There are also hidden needs that employees may not yet be aware of, such as treatment costs for a yet-to-be chronic condition or critical illness or a developing retirement savings gap. Employers must consider and validate these hidden employee needs before they grow to impact productivity and mental health, Palmer says.
“Employers have a key role to play to help employees avoid knee-jerk financial decisions, and instead, to adopt better habits with their personal finances that will serve them well – not just now, but over the long term,” Palmer continued. “This includes how to have a ‘money conversation’ at home, which can be key to reducing money stress and mitigating mental health impact.”
To drive sustainable financial habits and behaviors, Palmer says more employers are now moving to close the gaps through employer matching of contributions, collecting data on savings gaps by gender as part of diversity and inclusion strategies, and setting up supplementary employee savings plans, typically in conjunction with comprehensive financial wellbeing support for employees. On the investment side, there is also increased focus on responsible investing, and environmentally and socially responsible considerations.
Employers are also proactively helping to drive awareness amongst employees of the need to save for the unexpected and for the long-term. Through nudge communications and coaching, employees receive practical suggestions on how to avoid or best manage financial stress and its related impact on mental health. These efforts ladder up to help the workforce gain financial resiliency.
“The starting point for employers is through data to identify these employee health-wealth gaps,” Palmer says.