Let’s think about the question in this headline and the date it was asked.
On the date of publication
- Savers and those spending their retirement savings were facing a hike in fuel bills and inflation reckoned by PWC to be 8.4% (some experts reckon it may reach 12% for those needing emergency assistance)
- National insurance increases are arriving decreasing take home and increasing the oncost of employment (limiting wage growth)
- State benefits (most particularly the state pension, pension credit and universal credit are increasing by 3.1%)
- If the PWC prediction is borne out, the country is facing a drop of 2% in household incomes. This would be the biggest decline in wages since the 1970s, and the largest fall in living standards since records began.
- The situation is sufficiently serious for Martin Lewis to predict
I am not a savings provider but I am an employer and as an employer we do everything we can to maximise the effectiveness of retirement saving , using the national insurance savings we get from salary exchange to boost pension contributions. But we do not think it is a good idea to talk to staff right now about auto-enrolling people into emergency savings plans.
We think it responsible to talk to staff, whether on a UK payroll or contracting to us from abroad about financial anxieties they may have.
Nest Insight’s question could not be posed at a worse time. Now is not the time to press for sidecar savings to be an opt-out payroll deduction.
This blog is about the important messaging coming from pension providers (rather than employers) about savings and financial priorities over the next 12 months.
My view is simple, when the choice is heat, eat or save, saving must come third. Now is not the time to be auto-enrolling people who may be using food banks, into savings schemes. It is the time to be talking to staff about help available to them , to meet their bills. We are participating employer in Nest, I cannot encourage opt-outs, but I can explain payroll deductions and explain choices people have.
Here are some reasons why I am very wary of auto-savings products at this time.
- Many people do not understand payroll deductions and take their net pay as read.
- Where people are aware of opt-outs, they may be unwilling to do so, fearing they may be considered imprudent (especially on savings)
- People who are in financial difficulties are so fearful about losing their primary income that they will suffer payroll deductions which are not right for them
- The power of auto-enrolment is such that many people are already prioritising saving over heating and eating and this is likely to increase as the cost of living crisis continues.
Now is not the time for new payroll saving schemes, people may need to take a break from retirement savings to pay their bills. Responsible employers should be considering savings moratoriums and looking at ways to reduce the burden of pension contributions. That could mean using cost-sharing of NI savings from salary sacrifice, it could mean moving low paid employees out of net pay pensions , it could mean making pensions non-contributory for those on low incomes. These should be immediate priority.
There are a handful of employers which have properly considered the implications of auto-saving as I will come on to. But these employers are large enough to make these ambitious schemes work across thousands of employees. Frankly even they would accept that implementing a payroll savings schemes right now would rightly be considered insensitive by staff – “a sick joke” .
This seems obvious, but it is clearly not obvious to Nest Insight or to the people who back this project.
Nest mentions that a handful of employers have had the foresight to change employment contracts so that opt-out savings can be implemented. One such employer, quoted in Nest’s consultation on auto-saving is SUEZ. An employee is quoted
But this savings scheme was implemented in the good times and not discussed in the middle of a cost of living crisis. SUEZ employees now have the financial buffer needed, but that’s because they pre-planned.
The savings industry needs to be sensitive to short-term considerations. It needs to accept that in emergencies, saving is de-prioritised and the focus is turned to helping people struggling to pay energy or shopping bills. The most obvious means of alleviating financial hardship is through the creation of hardship funds (to which employees can apply discretely), alongside such funds, employers can use the resources of the DWP, Citizens Advice, MaPS and the benefits websites (including MSE) to encourage maximum take up of benefits.
Martin Lewis is going further, Heat the human, not the home, is an initiative to ensure people stay warm in a house they cannot afford to heat. It was launched on April 5th and is timely. Working poverty is a real thing, Nest Insight needs to turn its resources right now to promoting immediate actions that employers can take to avert working poverty. This is a real crisis that is happening right now.
In the face of working poverty , the savings industry needs to ask serious questions of how it promotes itself at this time.
For Pensioners it can be even worse.
Meanwhile , huge numbers of people in their mid sixties are approaching or have passed state pension age, unaware of their pension entitlements. Many people in their sixties struggle to get paid employment or find such employment doesn’t pay, they are no longer eligible for workplace saving – they do not work.
Employers cannot be expected to provide help to former employees who are or will soon be pensioners. But workplace pension providers can. Nest’s retirement age is the state pension age of the individual saver. Anyone who still has savings with Nest at state pension age is potentially a candidate for the pension guarantee within pension credit and a candidate for savings credit (if only for having a Nest egg).
We do not know how many of Nest’s 10m pension pots are connected with the 850,000 households thought eligible for pension credit but not claiming. A proportion of that number will be in the emergency ward of the cost of living crisis. What is Nest doing to help these people over the acute crisis in 2022?
Insensitive messaging from pension providers will harm not hinder a savings culture. The core purpose of Nest is not to instill a savings culture in the workplace but to provide income in retirement that will at least eliminate pensioner poverty. But this cannot be achieved if employees are unable to heat or eat, while they save. Such people can easily save themselves and their families into penury, because of payroll deductions they are either blind to , or scared to do anything about.
These harsh realities are today’s realities. Nest and Nest Insight should be publishing their emergency plan for helping their most vulnerable savers through the coming months, and that plan should include a section for those who have Nest savings and no job, because they find themselves too old to work and too poor to save.