Measuring financial wellbeing: pensions contributions as a metric

If you want to measure financial wellbeing in the workplace directly, you should use a financial wellbeing survey to get self-reported data. If you pair this with proxy measurements, such as pensions contributions data, you can increase the validity of your findings.

Is pension contribution data a good proxy for financial wellbeing?

Good proxies for financial wellbeing tend to have two characteristics: firstly, they are easily quantifiable, objectively measurable and have a history of measurement in the organisation. There are bonus points if the proxy is externally comparable i.e. if many other organisations or society as a whole also measures it.

Secondly, they are generally correlated with one or more parts that make up financial wellbeing, such as ability to save, perception of future prosperity or levels of financial stress.

Pension contribution data scores highly on both. It is quantifiable in aggregate and across different cohorts, is easily trackable over time and also tends to be externally comparable as all organisations have pensions – baseline levels of contributions can generally be found in the public domain.

How much people contribute to pensions is also a good proxy for their relative financial wellbeing – it’s often the first thing to go as a financial ‘nice-to-have’ when times are hard. It’s also a good proxy for ability to save because people tend to psychologically need a specific level of savings before they consider increasing pensions contributions.

How pensions contribution data can give insight into employee financial wellbeing

Here are two ways pensions contributions data can give you insight into the financial wellbeing of your team.

Firstly, you should have a baseline of pensions contribution data where you can see cohorts, individuals and departments whose contributions deviate from averages across the organisation. Where contributions are lower (particularly among more vulnerable sub-groups or lower-earners) it can be a sign of financial stress.

Secondly, requests to temporarily pause or lower pension contribution levels may be a sign of poor financial wellbeing. Conversely, requests to increase contributions (particularly requests that are out-of-sync with your comms campaigns) may be a sign of increased engagement with financial education and improved financial health.

Finally, levels-of-contribution out of sync with life stage (e.g. contributions should increase closer to retirement) may hint at a poorer state of financial health or conversely a need for further financial coaching if lack of knowledge on the importance of preparing for retirement is to blame.