The Great Risk Transfer: employment and financial wellbeing

20th August 2024

This research examines the impact of the Great Risk Transfer on individuals and society through the changing relationship between employer and employees.

What are the implications on productivity and aspirations for economic growth?

The report shows that a third of employers only provide the bare minimum when it comes to sick pay and pensions.

It also highlights how staff in hospitality, retail and social care are the most financially vulnerable and that over a quarter of Scots lose sleep over money worries.

The research finds:

• more than two-thirds of employers (70 per cent) are concerned over the impact of financial strain on their employees and their productivity, citing increased stress on managers and other staff (35 per cent) and a rise in absenteeism due to poor health (28 per cent)

But

• a third of employers (33 per cent) in Scotland do not offer any enhanced benefits as part of their employee benefits package

• more than half (56 per cent) do not currently include financial wellbeing in strategies to support employees.

The Great Risk Transfer report recommends the need to:

• Recognise employers’ power to drive change. Employers should recognise the connection between financial wellbeing and productivity and how their actions might alleviate employee’s pressures 

• Increase understanding of Living Pensions: Government and employers should work together to increase understanding of the need for Living Pensions and that employees on auto-enrolment minimums are not currently likely to be saving enough to live well in retirement

• Complete the Pension Provision Review. The review of pensions provision signalled by the Labour Party before the 2024 election should go ahead and include a specific focus on potential improvements and innovations in workplace pensions.

This is the second piece of research the David Hume Institute has produced in partnership with the Institute and Faculty of Actuaries about the Great Risk Transfer.

As part of this research the David Hume Institute commissioned the Diffley Partnership, to investigate employer attitudes to the Great Risk Transfer. The survey was conducted in May and June 2024 and is based on responses from 550 businesses. The full survey results were published as an appendix to the main report.

Read more:

• Press release - Bare minimum from many employers driving poor productivity.

• Watch the event launch recording here.

Research: The Great Risk Transfer - have we got the balance right?

How many people have the knowledge and time to manage the financial risks they face in life? To what extent does it matter?

We partnered with the Institute and Faculty of Actuaries (IFoA) to explore these questions. We aimed to find out more about what people in Scotland understand to be the key risks in relation to their long-term financial wellbeing and what helps and holds them back from addressing them.

Our engagement with people in Scotland was designed to build on recent work carried out by the IFoA which has been exploring the ongoing trend of transferring risks from institutions – such as employers, the state, and financial services providers – to individuals.

The IFoA calls this the ‘Great Risk Transfer’ describing it as posing one of the most significant yet little understood social, financial, and political challenges of our time. The changes described in this work show that far greater responsibility is being placed on individuals for managing their lifelong financial wellbeing than has been the case for most people living in Scotland since the establishment of the modern welfare state.

The Great Risk Transfer research showed that the causes of this trend are complex. They include increasing life expectancy, technological advances, changes in financial regulation and political choices. The IFoA highlighted four important areas of risk transfer: pensions, work, health and insurance. Our work was designed to find out more about relevant perceptions of risk in the Scottish population and how people respond to risks which can affect their financial wellbeing.

We explored people’s awareness of the Great Risk Transfer and their ability to manage and respond to financial risks. This revealed two interlinked themes which have implications for policymakers and others interested in either mitigating against or rebalancing responsibility for the relevant risks.

• Cultural – what people know, how they feel and what they do to manage risk

• Structural – the wider social and economic system

Our work commenced in December 2021 and concluded as inflation grew to levels not seen since the early 1980s, with rapidly-increasing fuel, energy and food prices dominating the headlines. This comes at a time when wages and social security payments have generally not kept pace with inflation, leading to widespread acknowledgement of a significant rise in the cost of living.

Not surprisingly, many of the people we spoke to were focused on immediate financial challenges. These included high housing costs, insecure tenancies and jobs, low incomes and debt, and, for some retired people, the challenge of living on a fixed income. This report is structured around four key areas which emerged strongly in our research:

• Knowledge and awareness of risks to financial wellbeing

• Trust in information providers

• Stress, fear, stigma and embarrassment

• Ability to access and understand guidance and information