Lifting the financial wellbeing fog

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Pay advances and salary loans are coming under increased scrutiny by the UK Government.

In our last blog we explored how these benefits have recently been classed as consumer credit in the Financial Conduct Authority’s sector view report. In summary, the FCA highlights that this new area of credit is responding to social trends and although it’s an innovative way to lend money, a loan is still a loan. 

This call out by the FCA triggers a heightened onus on employers to ensure acknowledgement of their responsibility and due diligence if they are offering pay advances or salary loans to employees.

In addition, the recent noise in the market around the potential for Neyber’s salary loan portfolio to be taken over will have knock on implications for employers, as any changes will need to be communicated to employees.

Erik Porter Ex-CEO of the Money Charity, and CEO of Cheddr captured the implications of the news around Neyber in a recent article: “Like personal wellness, financial wellbeing is a lifelong pursuit which isn’t always easy and there’s no silver bullet, but I would like to see us all agree that we should focus our efforts on changing behaviour and enabling consumers instead of putting them further in debt.”

Approach with caution

With this in mind, if you are offering these types of benefits or looking at providers, we thought it would be useful to remind ourselves of the principles that Debi O’Donovan from REBA (Reward and Employee Benefits Association) outlined a year ago that employers should consider before making a decision on a financial wellbeing provider:

- To safeguard employees’ finances: who owns the provider and what’s their motivation? How do they make their money? Where are they registered (UK/offshore)? Do they pay their taxes?

- To protect longevity of your benefit: are they a sustainable business?

- To ensure the benefit is right for your workplace: do they understand the employee benefits market and have experience in this field?

What is financial wellbeing?

Employers must also be careful about how the term financial wellbeing is used and how these benefits are being communicated. At this time of increased scrutiny it’s worth reviewing your communication approach, defining what financial wellbeing is and how you help your people to achieve it.

In our view, financial wellbeing is an on-going project of education and evolution. It’s different for every individual. For some, financial wellbeing could be simply feeding their family. For others it’ll be staying out of debt, building a nest-egg or taking three holidays a year.

But for everyone, it’s about having the knowledge and skills to make the most of an income – high or low – and enjoy a comfortable and contented quality of life. All the factors that influence your financial wellbeing are in constant movement and flux. Therefore, education must be the beating heart of your strategy so that employees can make informed choices. This education must be completely free of any product or provider bias, otherwise employees will be pointed toward a solution that may not be right for them. 

With the above in mind, although pay advances and salary loans can be a useful element to your financial wellbeing strategy – without unbiased education, skills and informative communications, it can be misleading and potentially damaging for employers to label this standalone benefit as ‘financial wellbeing’. At this time we recommend employers are extra careful about how this is defined to their people.

We are here to help

If you have any questions around choosing a financial wellbeing provider or how to communicate with employees around these changes in the market, please get in touch at hello@nudge-global.com.