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What European employers can do to improve financial wellbeing

By Pia Ellimäki, EMEA Value Engineering lead

Is it time European employers invested in their employees’ financial wellbeing?

The traditional European safety net of a state pension is more fragile than ever. Only a third of Europeans believe their pension will maintain their standard of living – yet only 43% have other savings or a private pension plan 1. Employees are worried, and employers need to step up– not only to calm their nerves, but also to ensure their productivity is not hampered by this financial stress.

Most Europeans enjoy a comprehensive social security system, providing them with healthcare, pensions, and unemployment benefits. For a long time, this has kept them worry-free, without the need to wrestle with critical life decisions, like whether to take out a loan to cover surgery, for example. Moreover, they have expected that the contributions they make automatically throughout their working lives will unlock sufficient state-provided pensions in retirement, giving them an adequate income for the rest of their lives.

That may no longer be the case for everyone, however. According to the Alight 2022 Retirement Perception Index, fewer than 35% of Europeans are now ‘highly confident’ that their pension will allow them to maintain a satisfactory standard of living when they retire.

< 35%
of Europeans are now ‘highly confident’ that their pension will allow them to maintain a satisfactory standard of living when they retire.

What has changed for the European employees?

  1. An ageing population: the percentage of people aged 65 and above in the EU has increased from 15.8% in 2001 to 20.8% in 2021 2. The median age in the EU has increased by 6 years in the last two decades, up to 44. Moreover, the ratio of working-age people to older people has decreased to just over three working-age people for everyone aged 65 or above.
  2. Unsustainable debt: As of today, 16 EU countries have an implicit pension debt (i.e., the estimated total of future commitments) that exceeds 100% of GDP 3. Today, pensions paid each year by European countries amount to an average of 12.7% of their GDPs, compared with 10.4% in 2000 4. This has led to an unsustainable accumulation of debt.
  3. Pension reforms: due to an increase in median age and growing debt, most European countries have introduced pension reforms, which often consist of multiple phases which have the highest impact on younger generations. These reforms are typically a combination of increasing the retirement age and reducing the amounts that will be paid. However, such reforms are often met with resistance. In France, for instance, plans to increase the retirement age from 62 to 64 have triggered major strikes across the country 5.

To compound matters, our study has revealed that 43% of European employees don’t have any additional retirement savings, beyond those offered by the state 1. Meanwhile, increasing inflation, heightened interest rates and looming recession are making the European economic environment more volatile.

What does this mean for employees and their employers?

Around 26.5 million wage earners in the 27 EU member countries are now paid at or below the applicable minimum wage. That corresponds to 15% of all wage earners. 7.3% of full-time employees are classified as "in work at risk of poverty".

According to Alight´s 2022 International Workforce and Wellbeing Mindset Study, almost half of Europeans say long-term financial planning stresses them out. This study is not unique and various studies have in fact shown that every week, financially stressed employees spend hours worrying about and managing their finances. This drop in individual productivity can result in a 3-4% impact on a company’s bottom line 6.

As a result of all this uncertainty, employees are now turning to their employers for solutions beyond their standard paycheck.

What can companies do to help their employees feel more financially secure?

According to our recent Mindset study, 68% of employees said they’d be comfortable sharing information with their employer in exchange for personalised financial guidance – and more than 20% want specific advice on long-term savings, such as pensions, before acting. Additionally, 57% are very interested in retirement contributions made by their employer, as part of their compensation package.

This investment is by no means a one-way street. Enlightened employers are acutely aware that a happy workforce is a productive one. Absenteeism and presenteeism are both costly direct side effects of an apprehensive/anxious workforce.

of employees said they’d be comfortable sharing information with their employer in exchange for personalised financial guidance

$220-550K annual savings from implementing a robust financial wellbeing program*

*Example of savings for a European company with 10,000 employees

The road ahead for employers

Today, the workforce includes more age groups than ever. Defining a benefits plan that addresses the concerns of different demographic groups requires careful planning, striking a delicate balance between those more concerned with the here and now, and those with two eyes firmly on the post-employment stages of their life.

Whether through benefits that directly impact employees’ wallets, or through longer term support and planning services, the traditional European perks package is evolving as a result. Employers that fail to keep up stand to lose out in the ongoing war for talent.

1 Alight 2022 Retirement Perception Index

2 Eurostat

3 Symeonidis, Tinios & Chouzouris, 2021

4  IMF

5 Reuters