‘The best things in life are free… I want money, that’s what I want’
A hit for the Flying Lizards hit in 1979, but perhaps an anthem for the millennial generation? One thing is certain, many young people are living in a world of debt. They love spending money and, unfortunately, we’re back in a world where credit is easy to come by. It’s infinitely easier, for example, to get a payday loan than to invest money in an ISA.
For many people retiring now, a lot of their wealth has been built up through home ownership and spiralling house prices. However, for those starting out in working life now, many are leaving university saddled with debt. They can’t afford to buy a property. The uphill climb to save for a deposit on a property, plus the building up of any other savings or investments, is sadly a very steep one.
If you add to that pension reforms, pension freedoms and the closing of final salary pension schemes around the UK, then we have a fairly toxic situation building up for the future. Our millennials are only too aware of these issues as well. Stress is the number one work-related health problem in the UK, and stress at work is estimated to cost UK employers about £26billion every year*.
So what can we do about it? To paraphrase Tony Blair: education, education and more education. Savings need to replace debt. Easily said, I know, but this culture change must happen. Currently, 48% of UK workers are not putting money aside for anything other than regular bills*.
Financial education is a great starting point to crack this ongoing issue, but how should it actually work, and who should fund it? Responsibility for this change in behaviour needs to be shared amongst those who will ultimately be faced with funding the mess that we will surely be in.
The Government recently decided to introduce the great new ‘Pensions Advice Allowance’, available for employees who want advice and education about savings and financial planning strategies for retirement. £500 can be deducted from an individual’s pension fund, without charge or penalty, to pay for advice. This can happen up to three times in an individual’s lifetime, but is limited to £500 in any single tax year. However, this allowance isn’t yet available. Due to the general election on 8 June, the Finance Act 2017 has been dramatically reduced, so nobody knows when or if this will happen. What a shame; let’s hope it does, one way or another.
Although the Government has helpfully begun to design a mechanism to fund some of the necessary financial education and advice, it is also the responsibility of employers. If they don’t attempt to tackle the issue, they will inevitably face higher tax burdens in the future – as, of course, will individuals. That said, desire to fund financial education should not simply be based on fear of future financial obligations – look after your employees and they are much more likely to be loyal to you! 57% of respondents to a 2016 survey said they would be more likely to stay with an organisation that cared about their pension and future finances**.
While we wait to discover when the option will be available for individuals to use £500 from their pension savings to fund financial advice, remember there is already an allowance for employers to help in this area. An employer can pay up to £500 per employee each year, to fund financial advice, without it being a P11D benefit.
*Neyber and Social Market Foundation – Working Well Report, January 2016
**Employee Benefits, May 2016
This article was first published with REBA on 15 May 2017.