From worries about debt and paying the bills, to unknown expenses, financial worries affect us all at some point during our lives. For people under acute financial stress, money worries can seem to take over their lives, both at home and affecting performance at work.
An emergency cash fund as part of a well-rounded financial wellness proposition can take away some of this stress for employees, allowing them to regain some balance and focus and a feeling that they are once again in control of their finances. However, only one workplace pension provider currently has the facility to create an emergency cash fund as part of their workplace pension and financial wellness offering.
Our latest insight looks at what an emergency cash fund is, what is on offer, and what role education has to play.
Over a third of employees have had personal financial issues become a distraction from work, according to a report from consultancy firm Mercer in 2019. A quarter of those surveyed said that money worries had negatively impacted their productivity. It is reported that almost one in ten had taken time off work to deal with financial matters.
Wellness, both mental and financial, is being seen as increasingly important by employers and pension providers.
Employers have cottoned onto the affect money worries can have on their workforce. Almost nine out of ten (88%) employers surveyed for the 2019 Close Brothers Financial Wellbeing Index report said that they believe their staff worry about money. A similar number (86%) said employees worry to the extent that it affects their work.
However, the same report also states that more than half (55%) of employees believe their workplace offers nothing to improve employee financial wellbeing.
Handled correctly, employers are in a unique position to influence the financial wellness of their workforce, for many of whom the Coronavirus pandemic may have exacerbated existing financial problems or created entirely new ones.
Therefore, financial wellness propositions are seen by many employers as an increasingly important part of the benefits package for their employees. We have recently carried out detailed analysis of what pension providers are offering as part of their financial wellness offering and the results of our Financial Wellness ratings will be published next month.
One aspect of a financial wellness proposition is an emergency cash fund. In its simplest form, an emergency cash fund is a sum of money safeguarded in case of a financial emergency such as illness, unexpected expense, or even job loss. Most financial advisers recommend that households have at least three to six months of expenses kept in such an account.
Emergency cash funds are most commonly held in cash deposits, ISA’s or a GIA’s. Building up a reserve of money (usually held in some form of instant access/readily available account) can be used in times of need and means that you don’t need to use credit cards or expensive borrowing options.
A survey by the Chartered Institute of Personal Development in 2020 found that 67% of employers cited their employee’s mental health and wellbeing as the main organisational challenge they currently face. However, our data shows that only one workplace pension provider (Cushon) currently has the facility to help members create an emergency cash fund as part of their workplace pension and savings.
Cushon’s emergency cash fund facility can be invested in either an ISA or GIA product, which can be set up via the workplace as part of their workplace savings platform.
One area which has become a key focus for many employers in the wake of the Coronavirus pandemic is how they can support vulnerable employees. According to the recent research from UK regulator the Financial Conduct Authority (FCA), 27.7 million adults in the UK now have characteristics of vulnerability.
Low financial resilience is listed as one of the key characteristics of vulnerability. The FCA defines low financial resilience is over-indebtedness, a low level of savings, and/or low/erratic earnings.
An emergency cash fund is one way in which people can improve their financial resilience, by making sure that they always have enough money set to one side to handle the financial impact of the most common unexpected events.
Although only one provider can currently help a member set up an emergency cash fund, more encouragingly, our data shows that nine workplace providers are providing educational literature about why an emergency cash fund is important. Which is a step in the right direction.
Cushon, Fidelity, Fidelity Master Trust, Legal & General, Legal & General Master Trust, Mercer Master Trust (Aviva), Mercer Master Trust (Scottish Widows), Royal London and True Potential provide educational literature about why an emergency cash fund is important via their online portal and mobile app.
Cushon, Fidelity, Fidelity Master Trust, Mercer Master Trust (Aviva) and Mercer Master Trust (Scottish Widows) also offer education on emergency cash funds via face to face sessions.
Whilst, Cushon, Fidelity, Fidelity Master Trust, also offer printed literature also.
We should not underestimate the importance of financial wellness, however overall, our data shows that when it comes to emergency cash funds workplace pension providers still have a lot of work to do. Whilst some work is being done around educating members about the importance of having an emergency cash fund, only one provider can actually facilitate the creation of one.
Money worries do not just affect financial health; they are one of the single biggest causes of stress and so can impact mental health and physical health too if left unchecked. In carrying out our financial wellness ratings it has been encouraging to see that many workplace pension providers are now offering a number of services to help their members. We will continue to explore these in the coming weeks.