Businesses trialling Nest Insight’s sidecar savings project have said it can provide a boost to financial wellbeing, but cautioned that questions of inertia and affordability need to be overcome.
Now known as Jars and being tested with staff at BT, StepChange, the University of Glasgow, and Timpson, the sidecar savings model sees savers split contributions between a Nest pension and an emergency liquid savings pot.
While auto-enrolment laws currently require the emergency pot to be funded using contributions above statutory minimums, the model could feasibly be used to raise AE rates without negatively impacting short-term financial health.
After signing up to Jars, employees set a rate of contributions and a savings target. When the money is deducted from their pay, contributions above their auto-enrolment payments are diverted into an interest-bearing savings account labelled for emergency savings.
Once the emergency pot is full, the entirety of contributions goes towards retirement savings, but if the pot is drained the split begins again.
A research paper asking employer representatives for their feedback on the trial revealed broadly positive impressions.
Companies involved supported the broad concept of Jars, primarily as a way of shoring up short-term financial health with added pension contributions being a secondary benefit.
One employer told researchers: “We wanted to introduce something around financial wellbeing. This is because of research, it’s all there — there’s a huge population that don’t have any savings at all. That’s bad for both the employee and ourselves.
“People with no money are worried. What if we had a reliable employee and now they’re unreliable and have absence issues because of money? Any wellbeing is important to us, and mental and physical health are stresses.”
These experiences are replicated across the wider UK, with 69 per cent of employers telling the Money and Pensions Service that money worries have affected their employees’ work performance.
Respondents were also impressed with the simplicity of the deduction mechanism, saying that the implementation of Jars would be no more complex than any other benefit rollout. However, the system is currently only compatible with relief-at-source pension schemes.
Employers were concerned about the level of member engagement with the new offering. Unless auto-enrolment laws are changed, sidecars can only be an opt-in service, making them vulnerable to the same inertia that plagued workplace defined contribution for many years.
Others felt that some of their employees would simply be unable to afford extra contributions each month, while some are too busy to drive better engagement at the moment.
“If I’m honest, we are trying to work hard so the business survives — I’d say getting your head above water. So I don’t know when I’d be able to discuss savings with colleagues. Let’s just see how things are next year,” said one respondent.
The report’s authors concluded that employers may not feel qualified to judge the employee value demonstrated by Jars or a similar product, meaning a framework for evaluation could be helpful.
“The pandemic has created an uncertain and difficult backdrop for rolling out new benefits to employees, given the many other issues that employers are trying to manage and address at this time. But it has also brought employee financial wellbeing to the forefront of most employers’ thinking, and made the idea of saving for the future much more salient to most employees,” said Jo Phillips, director of research and innovation at Nest Insight.
“We believe that now more than ever the case for helping employees to build up short and longer-term financial resilience is clear. We hope these early learnings from our trial provide valuable insights for policymakers in the UK and beyond, as well as to providers, employers and employee benefits consultants who are working on solutions to support people to build financial resilience.”
angus.peters@ft.com
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