Workers could soon be auto-enrolled into easy access savings accounts
The initiative known as the ‘sidecar savings model’ would provide workers with an accessible pot of money for emergencies, which would sit alongside their workplace pension.
According to the Money Advice Service, only 44% of the UK working population has £500 or more of ‘rainy day’ savings, and 26% has nothing.
The project follows the success of auto-enrolment, which has seen an extra eight million people save into a workplace pension since it launched in 2012.
The trial has been launched by NEST Insight, the research division of NEST, the workplace pension scheme set up by the government.
How does it work?
In a sidecar structure, contributions over and above the auto-enrolment minimum will be distributed between an emergency savings account and pension pot.
When the balance in the emergency account reaches a predetermined threshold level – known as the ‘savings cap’ – all contributions will go into the pension.
If the saver withdraws funds from the emergency account, future contributions would start to be divided between the emergency account and pension pot again.
NEST is finalising the interest rate that will be paid on the savings account, but said it will be “competitive…compared to other savings accounts on the market.”
It said savers might get a higher rate of return on less accessible types of savings products, but that the whole point of an emergency savings account is that it’s immediately available if people experience a financial shock and need the money straight away.
The sidecar account is provided by Salary Finance.
When is it being rolled out?
The trial is due to go live within workplaces over the coming months.
Timpson will be the first employer to roll out the trial for their over 5,600 workers. Participants will be monitored for two years to assess sign-up rates, how much they save, and the impact on financial wellbeing.
Michael Royce, strategic lead on budgeting and saving at the Money Advice Service, said: “Many millions of adults who are ‘financially squeezed’ or ‘financially struggling’ lack a savings buffer to help them cope if they were to face an unexpected bill. All too often, these costs can lead to financial difficulty. This is why the Money Advice Service is delighted to be partnering with NEST Insight to test the innovative concept of sidecar savings.
“We hope it builds on emerging evidence that workplace savings initiatives can be an effective means of helping people enhance their financial resilience throughout their working lives both for the short-to-medium term and for when they move into retirement.”
James Timpson, chief executive at Timpson, said: “Our colleagues are the heart and soul of our company, and when they’re happy they provide the very best service to our customers. Financial wellbeing is an important part of this. We know money worries can have a really negative impact on colleagues’ health, happiness, and productivity at work. We’re delighted to be taking part in NEST Insight’s sidecar savings trial to help our employees become more financially resilient, both today and into their retirement.”