This is sage advice at any time in your career or whatever stage in the economic cycle. Financial wellbeing is not about making everyone a millionaire, it is about helping people to make the most of the financial opportunities available to them - most of which start in their reward and benefits in the workplace.
Most people generate the majority of their wealth over their lifetime from their workplace reward and benefits and so it is essential that they understand what's on offer and how to make the most of this for their own personal finances.
There are several ways to use benefits to improve financial wellbeing and potentially beat inflation:
Back to basics – if these are available in your workplace you should use online tools and modellers. In particular, a budget planner and a pension modeller. By using these tools even only annually you will see what the gaps are, what you need to do and these will prompt action. Budgeting is to be encouraged if only once a year, perhaps after a pay review or bonus. People can often be surprised when they see ‘written down’ what they are actually spending their money on each month and the proportion. This, together with a message to review your outgoings, see below, and to look at comparison websites to change things like utility costs, mobile phone tariffs, mortgages, savings accounts etc to get better rates can deliver hugely positive net inflows to your personal budget.
Use your company benefits to reduce your outgoings. Using your benefits to reduce your outgoings can be a quick way to beat inflation. Use your company gym or gym membership programme, cycle to work scheme, childcare vouchers, health care plans (including dental cover), even life insurance, eye care, discount vouchers for retailers and so on rather than arranging your own. Some employers even now offer car lease deals through a salary sacrifice arrangement. Employers can often negotiate really beneficial terms for their staff and so if you use these via your benefits you are likely to get them cheaper or at better premiums than you could arrange yourself. This can provide an immediate inflation beating saving across a number of outgoings and you can amend the levels every year to continue to meet your commitments and circumstances.
Contribute to your workplace pension scheme. Within the specified limits, on the contributions you make to your pension you get valuable tax relief (20% for basic rate and 40% for higher rate). This means £100 added to your pension will only cost you £80 (basic rate) and £60 (higher rate) - an immediate inflation busting increase. In addition, with the introduction of automatic-enrolment, your employer must contribute too. So you, your employer and the government will be contributing to your pension every month. Your money will grow in a tax-efficient environment and you can manage those investments yourself – if you want to. Whilst a pension is a long term savings vehicle (you can’t access it currently until age 55) you will have a number of choices when you do access that pension: you can take it as cash (subject to tax above a tax-free limit); you can keep it invested and take from it what you need to live on, known as draw down; you can use some of all of it to buy a product called an annuity which will ‘buy’ you (and potentially your partner/ spouse or dependants) a defined income for a defined number of years; or you can do some combination of these choices. It is vitally important that you make the best decisions with your pension and so you may wish to seek advice on what’s best for you.
Save As You Earn (SAYE). If your employer offers a SAYE share scheme this can be a good way of saving in a tax efficient environment and sharing in the success of the company you work for. You can contribute anything from £50 to £500 per month over a 3 or 5 year period. SAYE schemes are a very low risk way of saving which may give you the benefit of significant returns. They encourage regular saving and allow you to benefit from the rise in the value of your company’s shares. When the scheme matures, if the share price is higher than the offer price in your scheme you can then choose to use your savings to buy your company shares at the offer price and then sell them at the current price so making a profit on your savings and potentially beating inflation. You can choose to hold onto these shares and you may then receive dividend from them but you should be aware of the risks of holding shares too. If you take the shares you may well have made an inflation beating profit over the period (if the then share price is higher than the offer price) which you can then realise (beware capital gains tax) or put the shares into an ISA or your pension, for example. Share prices can go down as well as up, but at the very worst you get your money back.
Financial education – this is something that is growing rapidly at the moment with more and more companies offering it to their staff. Financial education programmes may include seminars, webinars, online education, tools and modellers and 121 guidance or advice. It should help you to understand all your benefits but more importantly how to use those most relevant to you and with the aim of improving your personal finances now, in the medium term and for your future financial security in retirement. For what may only be an hour of your time, this hugely valuable benefit can certainly help you to become more financially aware, more confident in making better-informed financial decisions and an investment in that sort of knowledge will always deliver the best returns.
These are only some of the ways workplace benefits can be used to benefit personal finances. Other benefits such as cycle to work, childcare vouchers, use of reduced rates in workplace restaurants and retail discounts can also be used every day to reduce outgoings.
Whatever benefit on offer in your workplace, it is worth comparing your own personal budget using them and not to see the difference. It will usually be a lot more than you think and the savings can be used to put towards saving for a home, longer term savings like a pension, or to improve your lifestyle.
USE WORKPLACE PERKS. Even workplace benefits with little apparent monetary value such as free tea and coffee can add up over time. Top up pensions. Many employers not only allow you to make additional pension contributions, but may match them or pay double what you pay in. To turn that down is to reject a pay rise and a higher income in retirement. Consider salary sacrifice. It may be counter-intuitive when facing a pay freeze to give up salary in return for a perk but it can save paying tax and National Insurance contributions. Employers often negotiate beneficial terms on anything from health insurance to car leasing. Jeanette Makings, of Close Brothers Asset Management, says: ‘This can provide an immediate inflation-beating saving across a number of bills.