REWARD
The power of payroll deduction
to empower individuals
MattBland, The Co-op Credit Union chief executive officer , discusses the advantages of savings schemes for both employers and employees
T he statistics are stark. When body tasked with enhancing the nation’s financial well-being – published its UK Strategy for Financial Well-being in January 2020, the scale of the problem was intimidating enough. 11.5 million people with less than £100 in savings to rely on; 22 million with no plan for retirement; 5.3 million children with no meaningful financial education. Add to that the impact of the pandemic and the problems are even scarier. the Money & Pensions Service (MaPS) – a government-backed If you are one of the lucky ones, you are probably sitting on more savings than you would have had without the pandemic happening at all, having had no chance to spend or go on holiday like you would have ordinarily. What’s more, your house has likely appreciated in value to a significant degree and any stocks and shares you hold – either directly or through your pension – have done very nicely indeed. But what about those less fortunate? Those who have seen work become even harder to come by or faced an income cut through furlough; those who recently lost the £20 weekly uplift in Universal
Credit (UC); those for whom the planned National Insurance (NI) increase from next April represents a significant new burden. The lucky amongst them are those whose already non-existent savings have transformed into new, but manageable, debt – those with debt have already seen it balloon to unsustainable levels. This really is a story of two countries – a great financial divide separates those with financial resilience from those without; haves and have nots. The Dickensian echoes are hard to ignore. The Dickensian echoes are hard to ignore. But what can we do about it? It might be helpful to start by reflecting on how it is that those who have done well through this pandemic have managed it. Is it through their hard work and ingenuity, their grim determination? Well, for many the answer is probably yes. I would venture to suggest, however, that there will be some who have seen their already relatively cushioned finances buoyed
through no particular effort on their part. Savings accumulated simply by a lack of opportunities to spend; assets growing in value through the vagaries of supply and demand. In this, there lies a kernel of insight that provides us with an opportunity to think differently about how financial well-being for all might be enhanced and, most importantly, how the payroll professional can provide a crucial mechanism for doing so. The insight points to the benefits of interventions that make good decisions and good outcomes the default position – you have to go out of your way not to do the right thing. Daniel Kahneman is a Nobel Prize- winning psychologist and economist whose best-selling books, most famously, Thinking, Fast and Slow , based on learning from many years of research in the field of behavioural psychology gave birth to a whole new field of enquiry – behavioural economics. You might know this as ‘nudge’. What ‘nudge’ theory says, first of all, is that people make bad decisions and do so habitually. They suffer from inertia, or inaction, when action is required. They perceive the future overly optimistically.
| Professional in Payroll, Pensions and Reward | November 2021 | Issue 75 30
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