Nest trials sidecar savings scheme

Nest trials sidecar savings scheme

Nest Insight has named Timpson as the first employer to trial its sidecar savings scheme.

The trial will be rolled out to more than 5,600 employees of Timpson who will be monitored for two years to assess sign-up rates, how much they save and the impact on each individual's financial wellbeing.

In a sidecar structure, contributions over and above the automatic enrolment minimum would be managed through a mechanism designed to create an optimal level of liquid savings, while also maximising long-term savings.

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 pre-determined 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 project was launched following research by the Money Advice Service (Mas) that found 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.

Michael Royce, strategic lead on budgeting and saving at the Money Advice Service, said: "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. We hope that it [sidecar savings] builds on emerging evidence that workplace savings initiatives 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."

The trial will explore whether the sidecar savings model can improve workers' financial resilience today and in retirement by creating an optimal level of savings.

Adrian Lowcock, head of personal investing at Willis Owen Ltd, said: "This is an interesting idea and we absolutely need to encourage people to save more.

"One of the advantages is taking money out of the pay packet before people get a chance to spend it.

"This will certainly help some people save who were previously just spending their money. In addition, unlike a bank account the money, whilst still accessible, isn't as easy to access as it would if it was a savings account with your bank.

"There are a number of challenges though. The individual will need to know exactly how much has gone into the pension and how much into their savings as they might need this for their tax return.

"Which also highlights another issue, if the money is taken out of the payslip is tax paid on it or not? If not then they might get a tax bill, or worse a fine, for not completing the tax return."