New research is putting into stark relief the nation’s financial resilience heading into a deepening cost of living crisis, as more than a third of employees live from pay cheque to pay cheque without any buffer, and nearly half say financial worries impact their life. What could this mean for automatic enrolment? 

 

A third of UK workers (36%) are living month-to-month without any spare cash for emergencies or shocks, and a quarter (26%) are struggling financially, WTW’s Financial Wellbeing study covering 4,100 UK employees has found. The findings are concerning given the UK’s current high rate of inflation, which is threatening to tip more people into debt. 

 

“It’s clear that for many workers, despite being in full-time paid employment, meeting day-to-day financial demands is a challenge,” said Stewart Patterson, director for WTW’s DC master trust LifeSight. 

 

The report’s findings, which date from January this year, mark no material change from before the pandemic, but the survey showed that 44% of employees have suffered some kind of financial shock in the past two years, such as a cut in hours, significant medical expenses or being a victim of fraud. The youngest workers are the least likely (28%) to have high financial wellbeing. 

 

In a similar survey of 2,000 UK adults by consultancy Wealth at Work, nearly half (47%) agreed financial worries impact their life, and more than a quarter (26%) said that it makes them feel depressed and anxious. The figure rises to more than a third (35%) for 35 to 54-year-olds. A significant percentage (17%) struggle to sleep because of money worries. For those aged 18-34 this rises to 22%. It also revealed that one in seven (14%) feel embarrassed about their financial worries, again impacting younger people more commonly.  

 

Jonathan Watts-Lay, director at Wealth at Work, called the findings “shocking”. He added: “As the cost-of-living crisis further drives the squeeze on household finances, it’s important for employees to understand that if they are struggling with money, it isn’t something to be ashamed of, but it is vital they face up to it and get the help they need." 

 

 

Some employers are raising salaries, but this typically falls still short of the price rises experienced in recent months, when the consumer price index hit 9.1%. As well as actual financial help, employees are however in favour of receiving support in the form of money tools. The WTW report states that two in five (42%) employees said financial apps and tools should be a core part of employee benefits, while 39% say they trust financial apps, tools and advisers that are suggested by their employer more than those they can find on their own.  

 

Discussions around this kind of benefit are being held as financial wellbeing has entered the corporate agenda, said Heidi Allan, a senior consultant at LCP. With companies feeling the pinch themselves, the conversations are often about how to best communicate to employees the benefits that are already available to them, she said, rather than introducing new ones – for example highlighting employee discount schemes. The key is to “hook that into real life scenarios and make it relevant for employees”, she noted, for example calculating how much a discount scheme could save and whether it would offset increased energy bills. It is about “making it relevant and achievable for people through small behavioural changes”, she said. 

 

Some employers are actively considering whether they would allow employees to flex down their pension contributions and divert them into liquid savings, Allan said, similar to the sidecar scheme that has been tested by master trust Nest. This would keep up the habit of paying contributions as it can be hard to rebuild once employees have given this up.  

 

 

Whether more employees will reduce or stop contributing to pensions is yet to be seen, but “we are starting to [hear] murmurs of pension contribution considerations from the employee perspective”, Allan said. “Whilst we’ve not seen a massive swathe of reductions or opt-outs, on a personal level I’m starting to have more conversations with people saying, ‘I am struggling a bit, is there something I need to consider’.” 

 

There is still a lot of stigma associated with financial worries, therefore when people have to cut back, they tend to do so on things that are not seen by others, said Allan – and this could include reducing or stopping pension contributions. 

 

“We are going to see people making these bigger decisions, more people will make that a reality as we move into the second half of this year,” she said. 

 

So far, there has been very little movement in total contributions received per month, said Eve Read, Nest’s acting director of customer engagement, with the percentage of total membership making contributions and the average amount of contribution per member also remaining broadly similar month-on-month to the beginning of the pandemic in March 2020. 

 

“We’re also not seeing any increase in the percentage of new members of Nest opting out of pension saving,” said Read. Since the end of phasing in April 2019, the monthly opt-out has been about 10%, which has been stable aside from a brief increase in mid-2020. 

 

“That being said, we are seeing a very small increase in the proportion of Nest members who become inactive – either by a change in their employment status or by choosing to stop contributing,” she said. This increase is however in line with seasonal differences, and as the data does not show the reasons for people becoming inactive, it is not possible to know whether these have changed. 

 

However, in a Nest survey from March this year, a quarter of members described their financial situation as very or fairly uncomfortable, and 31% said they were less comfortable than a year ago.  

 

Further qualitative research by the master trust this month showed that while the majority of members felt the cost-of-living crisis had had a negative impact on their household finances, of those that were looking to cut expenditure, few expected to stop or reduce their pension contributions.  

 

Tim Gosling, head of policy at B&CE, provider of master trust the People’s Pension, echoed the findings on opt-outs, saying that throughout the pandemic, workplace pension opt-out and cessation rates stayed relatively stable. “We expect that to remain the case during the cost-of-living crisis,” he added. 

 

However, Gosling was careful to point out that pension saving might not be appropriate for everyone at every point: “We would always encourage individuals to make such financial decisions based on their personal circumstances. The financial wellbeing of our members is of paramount importance and while we will always champion the very many benefits of automatic enrolment, there are occasions when it isn’t appropriate for some.”

Tim Gosling

Jonathan Watts-Lay

Charles Goodman

Margaret Snowdon