If the future of work lies in enabling and liberating people to be at their best, HRM must be built on an understanding of the whole individual, both inside and outside of work.

Our 2016 policy report, Growing the Health and Wellbeing Agenda: From first steps to full potential, called out the required shift in how employers regard wellbeing. From reacting to, and dealing with, issues to a more proactive prevention of problems and recognising that mental wellness can influence physical wellbeing. The report highlighted that a crucial element of employee wellbeing is their financial wellbeing and recommended that it be part of an integrated and holistic approach to employee wellness and a component of a healthy workplace.

As a consequence, the CIPD has commissioned the Institute for Employment Studies (IES) to undertake research to help HR professionals build the case for initiatives to support financial wellbeing and develop a coherent approach, as well as explore the barriers that workers face and how they can be overcome.

What’s employee financial wellbeing?

The CIPD sees employee financial wellbeing as a state of both emotional and physical wellbeing, produced by a set of conditions and abilities. It includes making the most of an adequate income to enjoy a reasonable quality of life and having the skills and capabilities to manage money well, both on a daily basis and for the future.

We assess our financial wellbeing by using both objective and subjective measures. Objective measures include such factors as annual salary, how much is owed to credit card firms, and the amount saved for retirement. Subjective measures concern our views on our own financial position. For instance, how does my pay compare with: my work effort; what my co-workers earn; and what I could get elsewhere?

Whilst pay is important in achieving financial wellbeing, it is not the only component. As well as the amount of salary, other elements of financial wellbeing include: being able to save for the future; being rewarded in a fair and consistent manner; being able to comfortably pay off debts; having benefits that offer protection in the case of an emergency (such as illness or redundancy); having opportunities for career development; and being financially savvy.

How big an issue is it?

Concern with financial wellbeing has led to the launch by the government-backed Money Advice Service (MAS) of the UK’s first Financial Capability Week. This campaign saw organisations and policy-makers staging events exploring various financial capability issues and raising awareness of its importance.

Figures from the most recent UK Adult Financial Capability Survey conducted by MAS show that financial capability of the UK population is poor, with a “spend today, rather than save for tomorrow” culture and millions of people at risk of sleepwalking into a future of financial vulnerability, as well as suffering from health problems known to be linked to poor financial wellbeing: stress, anxiety and poor mental health.

Research by MAS shows that:

• 40 per cent of working age people do not have good control of their money and do not manage it well, by for example; keeping track of their spending, having a budget, or being able to meet current financial commitments without difficulty.
• Four-in-ten adults do not have a modest £500 savings buffer, for example, to replace a fridge or mend the car
• 12 million people are not saving enough for their retirement.

Other research by Neyber shows

• Over half of the working population (55 per cent) report that facing financial pressures affects their behaviour at work and ability to perform in their job
• Some 44 per cent of women and 34 per cent of men in the UK workforce have felt anxiety caused by financial stress
• Some 18 per cent of employees lose sleep worrying about their finances
• 70 per cent of the UK workforce struggle with the negative impact of financial worries − affecting their mental wellbeing, relationships, health and productivity

What does the future hold?

Changes in the economy mean that the financial pressures currently faced by workers are only likely to intensify over the next decades, and will demand that they make some big choices and possibly exercise much greater financial discipline than recent generations.

One example of such change is the development of the ‘gig’ economy, where people are working in multiple task-based jobs a few hours per week or work in a series of short-term contracts.

These may grow as a share of the labour market compared with those in corporate long-term full-time jobs. Some of the emerging trends and challenges in three key areas: education, housing and pensions, are highlighted below.

Education

Expanding higher education provision in a climate of austerity has brought the challenge of paying for it. Major changes include: introducing and increasing fees for degree courses; replacing education maintenance grants with loans in England; extending loans to vocational courses such as nursing; and introducing loans for postgraduate courses.

These combine to increase both the level of debt which young people have on entering the labour market and the number of people affected. Projections show that graduates will be paying off student debt into their forties and fifties. Only 5% are projected to have paid student debts in full by age 40. Middle-income earners are likely to pay most as low-earners are not required to pay back their loans and higher earners will pay back their loans fastest and therefore pay less interest in total.

Housing

Despite a fall in house prices during the recession, housing costs have been increasing and there is substantial variation in accommodation costs across the UK, making some areas unaffordable for people on low and moderate incomes, which lowers labour market mobility. Rental costs frequently outstrip monthly mortgage repayments, creating an added challenge for those seeking to save for a house purchase.

Average house prices are forecast to rise 50% in ten years, and in London they could nearly double. The average cost of renting will also rise – by 27% between 2015 and 2025. Over half of people aged 20–39 are projected to be renting by 2025. Some estimates suggest that nine of out ten people aged under 35 and in the bottom half of the UK’s income distribution will be unable to afford to buy a home within the next decade. More people will either rely on transfer of housing through inheritance or living in a rented home. The latter has particular implications upon retirement, when housing costs will still need to be met from pensions.

Pensions

Young workers will have to contribute more towards their pensions than older people to achieve the same level of income and will find it necessary to work until later in life. This is caused by population ageing, with fewer working people to pay for the pensions, health and social care costs of those retired. The state pension age is currently under review and is set to rise to 68 by the 2030s as a result of increased life expectancy, and pensions are becoming less generous in the level of guaranteed income as defined contribution schemes are fast replacing final salary schemes. Over one fifth of people with defined contribution pension schemes think they will have to work until they are at least 70, and industry predictions are that young people will have to work and save 8% of their wages from the age of 22 until they reach 77 to achieve the same pension as their parents. Women will have to work longer than men because of career breaks followed by a return on lower wages than male colleagues. Achieving adequate pensions in the future is going to require a change of mindset, as surveys estimate that up to half of people not yet retired have made no plans for retirement savings.

Current attitudes among young people suggest several barriers to starting a pension: those aged 18–24 not yet contributing to a pension cite not perceiving a pressing need as their main reason, while those aged 25–29 are more likely to find it unaffordable. Debt from education and escalating housing costs are likely to make it even more challenging for young people to start saving for pensions.

Greater workforce diversity and transfer of responsibilities for pensions planning to employers and workers will be highly influential. A series of reforms to pension regulations demands that people make choices which they will need to think about carefully. The removal of requirements to buy an annuity enables people aged over 55 to take their entire defined contribution pension as a lump sum.

For those earlier in life, required provision of a company pension and automatic enrolment of workers has encouraged many people to start saving, but also offers the possibility of opting out – although few actually do. It raises questions about: whether the level of minimum contribution will be enough in the future and how workers may respond if contribution rates are raised further; and the role of the employer in encouraging employees to adequately save towards achieving the lifestyle they aspire to in retirement.

Why should we be concerned?

Our research finds compelling evidence that shows poor financial wellbeing impacts on health in terms of poor psychological wellbeing, higher stress and anxiety levels, and lower levels of good health.

In turn, this affects productivity in terms of poorer job performance, short-term decision-making, reduced ability to concentrate, lower productivity and absenteeism. Who should have responsibility for employee financial wellbeing: the Government, the financial services industry, employers or workers themselves? We believe that all stakeholders have a crucial role to play in employee financial wellbeing because the potential benefits are so great.

If we boost financial wellbeing in the UK then we can boost performance. Boost performance and employers will have more money to invest in their employees through higher pay, better benefits and more training and development. The higher our productivity, the bigger is our economy and the more able it is to generate the funds needed for schools, hospitals, roads, and so on. Higher financial wellbeing can also lead to lower levels of stress and poor mental health, with implications for health service expenditure.

So let’s start now.