Voluntary sidecar savings sign ups remain low despite employee and employer appetite

Nest Insight has published the early insights from its sidecar savings trial, emphasising that whilst employers and employees are attracted to these savings tools, voluntary take-up remains low.

The briefing paper, Supporting emergency saving: policy considerations and questions for future research, stated that, in principle, both employers and employees are attracted to the idea of a payroll deduction emergency savings tool with a pension saving rollover feature.

However, it clarified that there appears to be “significant barriers” to employees voluntarily signing up, even when they say they are interested in doing so.

As a result, the report noted that take-up within the trial has been low, although still comparable to trials of saving models by others, which it stated suggests that behavioural barriers are a factor.

It highlighted a number of avenues that could be explored to ensure effective operation of sidecar or sidecar-like models, including using an auto-enrolment mechanism to encourage employees to use the savings tool.

Although the report acknowledged that it is “unclear” what extent a version of auto-enrolment for emergency savings is possible under current regulations, it clarified that it is reasonable to assume that a suitable regulatory framework might be achievable, although it emphasised that more research is needed into this.

As part of this, the firm announced that it has been accepted into the sixth cohort of the Financial Conduct Authority’s regulatory sandbox programme, where it will explore the parameters of what’s possible within current regulatory constraints, with the findings from this expected to be published in late 2021.

The report also considered the potential role of master trusts in supporting emergency savings tools.

In particular, it highlighted the idea of master trusts being able to provide simple, deposit-and withdrawal-only savings accounts as having “instinctive appeal” given the “constrained market”, stating that this could help to expand capacity in the payroll-deduction emergency savings space.

The paper also suggested building emergency saving into the existing pension auto-enrolment policy and providing employer- and government-funded models for financial incentives to save for emergencies.

For instance, it noted that this could lie in employer contributions, adding however, that this does not appear to be emerging organically, with affordability being one clear barrier to employers, with some employers viewing these emergency savings accounts as “too liquid”.

Commenting on the findings, Nest director of research and innovation, Jo Phillips, stated: “Since we announced our sidecar savings research programme in November 2018, we’ve learnt a great deal, working closely with our partners and participating employers to take the idea of sidecar savings from concept to reality.

“So far, we’ve consistently seen that employers and employees are attracted to the idea of a payroll deduction emergency savings tool with a pension saving roll over.

“People like the idea of being able to ‘set and forget’, allowing the savings to build up automatically before their wages reach their bank account. And, importantly, to have the peace of mind that a buffer of short-term savings can bring.

“As is the case with many savings tools or accounts offered on an opt-in basis, and without financial incentives, the voluntary sign up level is currently low.

“Indeed, we’re seeing similar barriers to those preventing pension saving prior to the introduction of auto enrolment– people say they want to save, and welcome the availability of Jars, but they haven’t yet got around to signing up.

“Over the course of the trial we plan to explore further how people can be supported to sign up and save by examining the impact of different communication approaches and behavioural interventions."

Nest Insight’s sidecar savings trial, which is supported by Maps, BlackRock and JPMorgan Chase, will now aim to test the effectiveness and impact of a hybrid workplace savings tool called Jars, which combines short- and long-term savings.

Under this system, savings are made via payroll deduction, initially being directed to an emergency savings account, and, once a savings target is reached, into the individual’s workplace pension on top of their regular auto enrolment contributions.

As of January 2021, all participating employers in the trial will have implemented the Jars tool, provided by Salary Finance, beginning a two-year period of steady-state data gathering which will then form the basis of the final programme evaluation.

The largest employer taking part is BT, who will offer Jars to over 65,000 of its employees initially, with other participating employers including Timpson, the University of Glasgow, and Stepchange.

The briefing paper clarified that whilst it is still too early to draw conclusions about the efficacy of Jars, and to analyse in detail how sidecar savings accounts are being used, the policy debate around approaches to support short-term emergency saving has come to the fore amid Covid-19.

Indeed, the report highlighted recent StepChange research which found that 4.2 million people have had to borrow to make ends meet in the first month of the pandemic.

Nest Insight executive director, Will Sandbrook, added: “We continue to believe that further insights from our trial and other research are needed to evidence the case for expanding the use of workplace emergency savings programmes and to pinpoint the most effective design for this type of savings tool.

“The importance of having liquid savings for the short term is however widely acknowledged, and this has never been truer than in the current Covid-19 crisis, when so many people are suffering from a lack of short-term accessible savings.

“We know that in cases of severe financial difficulty, the impacts felt today may also have a knock-on effect in later life.

“Put simply, people may only feel able to save more for their retirement once they’ve put enough aside for today’s financial demands, and their pension savings will go further if they reach retirement with less debt or free from debt.

“Whilst it’s too early to draw conclusions from our trial, we believe it’s important to share what we’ve already learned from the procurement, tool development and employer and employee set-up processes to help inform the current policy debate around approaches to support short-term emergency saving.

“As with all of our research, it’s conducted to inform and support debate, rather than to advocate for any specific change. We hope the learnings from our trial provide valuable insights into the way forwards on this increasingly important issue.”

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