The low-paid in this country are not well served by pensions. So NEST Insight’s Sidecar Initiative should be welcome. In November it launched its sidecar savings trial and announced which organisations will take part in the research.
Whether those the Sidecar seeks to help are particularly bothered about pension saving is a moot point. The biggest financial worry for most low-paid people is the threat of Universal Credit, or at least the impact of its implementation. The Government is committed to introduce Universal Credit to 7m people by 2023. So far, it’s estimated it’s made 2.3m households worse off. Those on low incomes may feel a little sceptical about the timing of a research trial designed to get them putting money aside.
That said, anything that includes those currently excluded from pension savings, deserves the interest and support of payroll,
So what is sidecar savings about? The project will explore whether the sidecar savings model can improve workers’ financial resilience today and in retirement by creating an optimal level of savings. According to research by the Money Advice Service (MAS), many UK workers are currently in a vulnerable position. Only 44 per cent of the UK working population have £500 or more in liquid savings to hand for emergencies, and 26 per cent have nothing.
How the sidecar savings model works: In a sidecar structure, contributions over and above the auto enrolment minimum are managed through a mechanism designed to create an optimal level of liquid savings, while also maximising long-term savings. This would be administered as follows:
- Contributions paid into the combined account structure would at first be distributed between the emergency savings account and the pension pot.
- When the balance in the emergency account reaches a predetermined threshold level, known as the ‘savings cap’, all contributions would start ‘rolling’ into the pension pot.
- If at any point the saver withdraws funds from the emergency account, and so reduces the balance to a level below the savings cap, future contributions would once again start being divided between the emergency account and the pension pot.
The sidecar account will be provided by Salary Finance, working alongside a NEST pension pot. It would be administered through payroll.
The Single Financial Guidance Body, see the sidecar in terms of financial resilience
“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.
Workplace savings initiatives like the sidecar 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.”
For payroll the sidecar is all about an interface with SalaryFinance, an employee well-being organisation that helps employees with debt and saving using payroll as a partner. You can find details of SalaryFinance at https://www.salaryfinance.com
The theme of financial wellbeing is taken up by James Timpson, CEO of Timpson who are trialling the Sidecar. Launching the initiative Timpson said
“We know that money worries can have a really negative impact on colleagues’ health, happiness, and productivity at work. We’re .. taking part in NEST Insight’s sidecar savings trial to help our employees become more financially resilient, both today and into their retirement.”
We won’t have long to wait to find out whether NEST, SalaryFinance and Timpson are right, or whether this is patronising nonsense..
The trial is due to go live within workplaces over the coming months, with workers beginning to make contributions at the start of 2019. Timpson will be the first employer to roll the trial out within their organisation of over 5,600 workers.
Workers participating in the trial will be monitored for two years to assess sign-up rates, how much they save, and the impact on their financial wellbeing.
We will know by then whether the Universal Credit project has succeeded. I suspect that the DWP – whose loan to NEST is pushing on £1bn, have an each-way bet on what they see as a two-horse race. Cynics may point out that in a two-horse race, both horses may be fallers.
This article first appeared in Reward Strategy magazine.