The project is called ‘sidecar’ savings and is designed to chip away at the 26 per cent of the working age population who have no savings whatsoever to draw upon in a financial emergency – while increasing the percentage of workers (currently 42 per cent) who have more than £500 squirrelled away.
The scheme works by diverting a chunk of a worker’s pay every month into a hybrid savings account – part long-term pension, part interest-bearing deposit account.
While the pension element cannot be accessed until age 55, the employer can withdraw money from the cash account whenever needs must. When money in the savings account hits a predetermined sum, all monthly contributions get diverted into the pension until such time that the worker draws down on their savings. Then the monthly contribution gets divided again.
Embracing the savings habit
The objective is to get workers into the habit of saving so that when a financial emergency arises (or a “shock” as Nest describes it), they have some funds set aside to meet it. Rather than often is the case now where a worker faced with a financial shock resorts to turning off the pension contribution cap, or borrowing money on a credit card or from a payday lender.
I do hope sidecar savings is a big success and that other employers embrace it. I think it could encourage a lot of workers to take up the savings habit.
Sometimes, all people need in order to do the right financial thing is a hefty nudge. Launched six years ago, auto-enrolment has forcibly nudged 8m people into pension saving for the first time – or encouraged them to save more than they used to.
I am sure if sidecar savings became mainstream it would have a similar dramatic impact on the number of workers putting money aside for a rainy day.
Certainly, if my employer launched such a scheme, I would jump in with two feet – of course, wearing shoes repaired by those good men and women who work for Timpson.
Jeff Prestridge is personal finance editor of the Mail on Sunday