Whilst there are many times during an employee’s lifespan when such advice is helpful one of the most important periods for review is during the mid-life stage when change can still be easily implemented.
It’s an idea that’s being pushed at Government level with pensions minister Guy Opperman already testing the concept of a mid-life MOT at the Department for Work and Pensions following a recommendation by John Cridland CBE in his independent review of State Pension age published last year.
Speaking at the REBA Reward Leaders Forum 2018 earlier this year Opperman said that employees had to grasp that “having money put away gives you options not only to own a home but to change career and survive life’s setbacks and the difficulties that apply, as well as have a better standard of living in old age”.
By middle age, most employees will be fairly settled. They will likely have a good job, are progressing through their career and will often have a family and property to their name. But whilst they may seem a little more settled than their younger counterparts they may be the greatest in need of a financial MOT as they look to ensure their financial viability for the future and that they and their family could cope in the event of unforeseen circumstances such as illness.
So how can you help? Below we identify a five-step approach to helping employees better manage their finances by implementing a mid-life financial review:
1) Consolidate and manage debt
Although mid-life employees may not have the same level of debt as younger employees they can still be burdened by issues such as credit cards, loans and the general financial strains of life. As a financial MOT starting point reviewing debt is, therefore, a great first step. What is the level of debt and financial awareness amongst your employees? Are they managing debt in the most cost-effective way or are they resorting to high-interest solutions such as payday loans?
There are an increasing number of providers that can help employees with workplace savings and loan solutions in this space. Additionally, given that a mortgage can be the biggest debt employees will have it’s also important to ensure that staff have the mortgage product that best suits their needs and their affordability, so a mortgage review could also be a good idea.
2) Review short-term savings
It is also important at this point to review savings – for both short and long-term use – to ensure that staff can manage unexpected bills as well as plan for the future. Money Advice Service’s research shows that 4 in 10 working age people across the UK don’t have a savings buffer, with less than £100 savings available to them, despite 71% of people experiencing at least one unforeseen expense a year. To avoid financial stress and better manage unexpected bills employees need to put a savings buffer in place.
3) Review long-term savings, including pension pots
Whilst the first two steps have to be considered to ensure financial stress is minimised, for mid-life employees planning for the future also has to be top of mind. This is the time that employees should be ensuring they are ramping up payments both into easily accessible savings vehicles such as ISAs but also into longer term savings such as pension pots. This can either be through increasing regular contributions or by making additional injections when funds allow, such as through the release of capital.
Many employees will also be considering property as a future pension pot and so for those who have the income to spare middle age may be the time they are considering investing in a second property – perhaps on a buy-to-let basis – to generate income that could be used in their retirement. Here the right mortgage advice on the options available is vital.
4) Ensure staff have correct benefits in place – such as life insurance
During the mid-life financial review, it’s also important that staff consider whether they have the right benefits in place that could help them with financial stresses. Whilst the benefits this can include are wide-ranging perhaps the most important for those at the mid-life stage to consider are those such as critical illness cover and life insurance. Having these in place will ensure that staff – and their families – are covered should the worst happen. At this stage, it’s also essential to ensure that wills are made and up to date too.
5) Releasing equity for investment or supporting children
Although property may make up an employee’s largest burden of debt it is also likely to be one of their biggest assets. As employees review their finances they may well be looking to exploit such assets to fund higher cost needs such as releasing capital for house improvements or extensions. For parents, the priority may be on releasing lump sums to help children with high-cost burdens such as university fees, weddings or helping them with the deposit for their first homes. For the latter, parental guarantor mortgages are becoming increasingly popular and are an option that your staff could be considering.
These are just five steps that can be taken in a mid-life financial review but they cover the main points – debt, saving for the future and owning property. If you can help your staff tackle any of these then you will most definitely be reducing their financial stresses – and seeing the benefits on productivity and morale as a result.