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Mark Pemberthy, Head of DC & Wealth at Buck

The coronavirus pandemic is continuing to act as a major drain on the health and finances of UK workers. Despite furlough being extended until March 2021, millions of people face heightened financial pressures because of cuts to their income and the prospect of redundancy.

The Citizens Advice Bureau estimates six million UK adults have fallen behind on at least one household bill during the pandemic, including 1.2 million who have missed rent payments. Many more will be facing an uncertain financial future, with little or no savings to fall back on.

With research by the Money and Mental Health Policy Institute suggesting two thirds of employees who find things financially difficult have at least one sign of poor mental health, there has never been a greater need for employers to help staff build financial resilience.

Taking the first step

Fortunately, there are some simple steps employees can take to start improving the overall health of their finances.

Creating a budget is a useful first exercise because it highlights what you are spending your money on and whether you are living within your means. There are several free online calculators, such as the government’s Money Advice Service, that help people add up their expenses and then compare this figure with their take-home pay.

If your expenses are greater than your income, it’s time to review spending habits and look for  cutbacks or opportunities to make savings. This could be as simple as cancelling unused gym memberships and magazine subscriptions or shopping around for everyday purchases. Using comparison websites to find better prices on utility bills and insurance is another way of freeing up cash to cover everyday expenses and boost savings.

Working out a budget, and sticking to it, can help people feel more in control of their money and better equipped to deal with financial shocks.

Building a savings pot

Building up a savings pot is an important part of improving financial resilience. To cover life’s unexpected events, it’s generally considered wise to have three to six months’ worth of expenses saved as a ‘rainy-day’ fund. However, research by the Financial Conduct Authority shows one in eight UK adults has no cash savings, and a third only have savings of between £1 and £1,999.

Employers can also offer short-term savings plans or workplace ISAs to their employees. By diverting money directly from payroll, these could be a convenient way of encouraging healthy savings habits. Employers can go further and incentivise short term savings, either by matching employee contributions or offering an initial bonus to get the savings habit started.

Another straightforward way to make saving a habit is to use round-up options on cards and current accounts. These services round up transactions to the nearest pound – so, if you buy a coffee for £1.80, 20p would be automatically deposited into a savings account.

Additionally, when major financial commitments come to an end, such as loan repayments, redirecting the excess income into a savings account would ensure it isn’t absorbed into everyday spending.

For anyone struggling to stay motivated about saving, a useful tip is to name savings accounts after specific goals. For example, having one savings pot for an upcoming holiday and another for a new car. Being able to visualise a goal can help savings stay on track. Some savings providers make this very easy by allowing you to divide your accounts into different pots, some even send nudges to congratulate when you are on track and remind you if you are drifting from your target.

Prepare for the future

Although many workers will be focusing on the current state of their finances, it’s important to build up long-term savings as well.

Some employees may well have paused pension contributions to help cover short-term costs. As of June 2020, one in ten UK workers had either stopped saving into their pensions or cut their contributions due to pandemic pressures. Workers aged 55 or over may have used their Pension Freedoms to take out a pension commencement lump sum, which allows 25% of pension savings to be withdrawn tax-free.

However, pausing or stopping pension contributions, as well as dipping into long-term savings can have a significant impact in the long run and increases the risk of living a less comfortable life in retirement. If possible, a better approach is to cut out luxuries and shop around for cheaper deals.

For people returning to work, resuming pension contributions should be a high priority. The longer they are out of their workplace pension scheme, the larger the impact on their pot of money at retirement. Mapping out when to re-start long-term savings is a vital step towards boosting financial resilience.

Finally, employees should prepare for life’s ‘what ifs?’ by ensuring they have protection in place. Life assurance and income protection, which provides a monthly payout if an employee is too ill or injured to work, give much-needed peace of mind that living costs will be covered if the worst happens.

Enhancing financial wellbeing

By encouraging or incentivising staff to develop healthier spending and saving habits, employers can play a critical role in improving their employees’ financial resilience.

And it isn’t just employees who’ll benefit. A survey by Salary Finance found employees with financial worries were 8.8 times more likely to have sleepless nights, 7.6 times more likely not to finish their daily tasks, and 5.7 times more likely to have troubled relationships with work colleagues.

Therefore, just a few simple steps could make all the difference to an employee’s financial wellbeing, mental health and workplace productivity. Helping staff to build their financial resilience is invaluable.