Is the new side-car savings scheme workable with employee contributions rising in April?

Alan Morahan, Managing Director, DC Pensions, Punter Southall Aspire

Nest Insight has announced the launch of its new ‘sidecar savings’ trial to boost the financial resilience of UK employees by helping them build up a “rainy day” emergency savings pot of up to £1,000.  Timpson is the first company to sign up to the trial and will roll out the scheme to its 5,600 employees in the coming months.

The scheme aims to address the issue that many UK workers have little or no savings and prevent them turning to high credit solutions, such as payday loans. Research from Money Advice Service (MAS) has highlighted that 25% of UK workers have no savings[i], while only 44% have £500 or more in ready cash for emergencies[ii].

In the side-car structure, any money the employee puts into the scheme above minimum auto-enrolment level (currently 3% of earnings) will be divided between the emergency savings pot and the pension scheme.

Once the savings pot hits £1,000, all money will be paid into the pension rather than being split. If the saver withdraws funds from the emergency account, future contributions would once again start being divided between the emergency account and the pension pot.

Alan Morahan, Managing Director, DC Pensions at Punter Southall Aspire says, “While this is a really good initiative from Nest, aimed at helping more people save for emergencies and unexpected bills, I question the timing of its introduction.

“In April, auto-enrolment contributions for employees will rise to 5% which will hit some employees hard and make a big dent in their take home pay. Some are already struggling to make ends meet. In the run up to April, employers will be focussed on ensuring that employees don’t opt out of their scheme and asking them consider an additional savings account may just not be feasible.”

The challenges of asking people to save more were revealed in Punter Southall Aspire’s latest research report ,‘‘It’s Time to Change’.

Alan says, “We surveyed 2,000 UK employees about their attitude to savings and 30% said that retirement isn’t currently part of their financial planning and they were unable to save more into pensions because of other financial pressures. Half are paying off a loan or credit card, 30% regularly use an overdraft facility and 45% have dependents to support financially.”

“But despite this many want more support from their employer to help them better manage their finances and savings.82% said they wanted their employer to guide them on pensions and 72% want them to educate them about planning for the future. 68% would also like their employer to keep reminding them to review their pension, even if they don’t respond to their communications.”

The research also highlighted that improving communications would drive better engagement. It seems that people are put off by traditional pensions communications, with only 38% responding to the scare tactics that are commonly used.

Instead, three quarters (76%) would react to exciting messages, highlighting the need for companies to use positive and relevant messaging focused on the benefits of saving more. Respondents added that the best ways to capture their attention with marketing and communications materials would be with ‘powerful imagery’, ‘humour’, ‘moving words’ and ‘colour.’