Applying behavioural economics to improve employee financial wellbeing

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A leading cause of stress for the UK workforce is money worries.  One in five employees feel it impacts their mental health and wellbeing. This has a knock-on effect on other parts of their personal and professional life, such as relationships and productivity.  

Currently 44% of UK adults have at least £500 in savings and about 26% have no savings at all. This means any financial shock could have an immediate impact on their wellbeing. Paired with the rising cost of living and low wage growth, employees are more worried about money than ever before. So, what can employers offer to employees to help them become more financially resilient?

Does the way we present choices impact what people choose?

Many would agree that saving money is the right thing to do. But when it comes to taking action, we put it off in favour of other priorities, like a much-anticipated holiday or to cover rising expenses.

This ‘intention-action gap’ could be addressed through changes in our choice architecture (the way we design how choice is presented to decision-makers), and that’s what forms the basis of auto enrolment. But how strong is this effect?

In our Pioneering Pensions conversation with Will Sandbrook, Executive Director of Nest Insight Unit, he explains the effects of framing in their sidecar trials. The goal is to help people build an emergency savings pot (short-term savings) through payroll deductions alongside their workplace pension (long-term savings). The benefits are clear, and both employers and employees are supportive.

When the trial kicked off in 2018, employees had to actively choose for the side car savings. Only 1-2% of employees opted in. Then, in a recent trial, they used an opt-out approach instead where employees had to actively choose not to participate, and the take-up rate rose to 40%. The design had a large impact on uptake, which means the way we decide to present choice is critical.

Can better financial literacy lead to better pension engagement?

Financial literacy is often seen as a catalyst for better engagement, as financially literate people tend to save more. Learn more about financial literacy’s impact on financial wellbeing and how we can improve financial literacy in our conversation with Annamaria Lusardi, Professor of Accountancy and Economics at George Washington University.

Financial literacy helps build awareness and understanding of consequences to decisions. However, for Will, there is little evidence that financial literacy changes people’s behaviour. There is a difference between knowing what to do and actually doing it.

Both Will and Annamaria say that we can change behaviours in the short-term with just-in-time education. This is a form of targeted, bite-sized intervention that pops up just as a decision needs to be made. This type of just-in-time education can help people make a better-informed decision since they are open to information at that point in time.

How can employers and NOW: Pensions help improve employee financial capability?

With the added challenge of rising living costs and stagnant wage growth, people are less inclined to put more contributions towards long-term savings. But there are things that we can do to help employees feel more in control of finances and in turn alleviate their money worries:

  • Use just-in-time education to help your employees make important decisions. Money and Pension Service (MaPS) is a great and independent resource that provides impartial guidance (i.e., not selling products) and answers to complex topics.
  • Pensions are only one piece of the financial wellness pie. Do you have other employee benefits with low uptake? Perhaps it’s time to consider the choice architecture of those benefits i.e., making them ‘opt-out’ for new employees?
  • Pension Engagement Season kicks off in September. Consider adapting some of the campaigns and awareness material to engage your employees, whether it’s to educate your employees on their retirement options or to get them to log into their online account for the first time. 

Pioneering Pensions is a webinar series on today’s hot topics featuring international pension experts. Watch the full conversations with Will and Annamaria where they talk about the impact of choice design, member engagement, financial literacy and more at