How can employers support ‘sandwich generation’ employees with their finances?

Tuesday, 07 March 2017

Need to know:

  • Generation-specific financial education can help inform employees around relevant life events.
  • Giving employees the opportunity to contribute more of their salary into a workplace pension will have a positive impact on those that have missed out on a defined benefit pension and have been enrolled into a defined contribution scheme later in life.
  • Benefits such as childcare vouchers and flexible benefits can help sandwich generation employees tackle their day-to-day living costs.

Engaging the ‘sandwich generation’ with workplace savings can present employers with a challenge; typically aged in their 30s and 40s with both young children and ageing parents to support, this demographic has often fallen through the cracks of some workplace saving initiatives.

With the decline of defined benefit (DB) pension schemes, many employees in this age bracket will not have a DB pension arrangement to look forward to. According to the Pensions and Lifetime Savings Association’s (PLSA) Retirement income adequacy report, published in November 2016, 37% of generation X, aged between 35 and 54, will have some DB accrual to put towards retirement.

In addition, given the timescales until they retire and auto-enrolment contribution levels as they currently stand, this generation is not saving enough for an adequate retirement pot.

The PLSA’s report found that 97% of employees just saving into a workplace defined contribution (DC) scheme will have a probability of less than 40% of achieving the target replacement rate recommended by the Pensions Commission.

So how can employers help ease the financial strains facing this generation?

1. Revise pension contribution levels

One way that employers can help the sandwich generation reach their retirement targets is by reviewing their pension contribution structure, says Nathan Long, senior pension analyst at Hargreaves Lansdown. He recommends employers facilitate a 15% per annum pension contribution, but this does not have to be entirely employer funded. Contributions can be split between the employer and the employee, for example, an 8% and 7% split contribution to create a total 15%.

The PLSA’s aforementioned report on the other hand believes a 12% contribution would help generation X hit their pensions targets, according to Tim Gosling, report author and policy lead, DC, at the PLSA. However, he adds that higher contribution levels may be needed depending on individual circumstances.

2. Make education age-specific

Targeting financial education to different age brackets gives employees access to financial information that is most relevant to them at different points in their lives. For example, younger members of this generation who are raising families may be interested in learning about investments and savings for children. The information around long-term saving can then be applied to other financial areas. Long says: “If [employers] are educating [staff] about saving for children and investing their money in the stock market, the same sort of principles can apply to pensions as well, allowing them to absorb knowledge that will be useful for their pension planning.”

3. Explore the options

Although some staff may already be saving into a cash or investment individual savings account (Isa) alongside a workplace pension arrangement, the introduction of the lifetime Isa (Lisa) in April 2017 could also act as a springboard to encourage employees to become more involved with their finances and long-term saving.

The Lisa is only available for those aged 18 to 40, and can be used to help save for a first home or retirement. Although the product itself may not be beneficial for this whole age group, particularly because some may already own their own homes, it can still encourage employees to investigate their current savings vehicles and explore the options that are open to them, says Long.

4. Personalised options

Enabling employees to get the most out of their pay is essential to helping staff manage their finances and boost savings, says Andrew Drake, head of rewards and benefits at JLT Employee Benefits. This could include promoting schemes that enable staff to make savings, such as childcare vouchers, or benefits offered through flexible benefits plans, he adds.

Getting creative to find personalised, rather than off-the-shelf initiatives, that will resonate with a specific demographic is another way of tailoring financial support, helping to reduce day-to-day living costs and targeting the financial issues worrying employees.

Providing age-specific financial education that showcases an array of savings vehicles and equips employees with the information they need to manage their finances, can be an efficient and effective starting point for supporting sandwich generation employees and the savings challenges they face.

Shared from Employee Benefits