The research arm of the government backed master trust Nest will trial an ‘opt-out’ payroll savings approach which aims to help employees build up an emergency fund.
Building on the learnings from its ongoing sidecar savings trial, Nest Insight will test whether creating a savings fund with an opt-out joining mechanism enables more people who want to save to get started.
BlackRock and the Money and Pensions Service will be providing funding to this project, which will explore whether automatically signing employees up to save for emergencies via payroll increases participation among those who want to save for the shorter-term but do not do so.
The trial will give participants the choice not to save, since they can opt-out at any stage.
If they do not choose to opt out, they will automatically start saving a default amount into an accessible emergency savings account each time they are paid, without having to do anything themselves to set this up. However, they will be able to make changes to the amount if they want to.
FTAdviser's sister publication Pensions Expert understands the exact design and workings of the trial have not yet been confirmed, as Nest is currently seeking one or more employers and savings providers to collaborate on the project.
Nest has been working on its sidecar project since 2019, which combines short and long-term savings goals.
This savings model, which has been tested with several companies, sees savers split contributions between a Nest pension and an emergency savings pot.
After signing up to the sidecar, 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 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.
Will Sandbrook, executive director of Nest Insight, said there were positive signs from its sidecar savings trial: “The savings tool appeals to many employees, particularly those less financially secure, and there’s early anecdotal evidence of a positive impact on financial wellbeing, resilience and confidence among those who have signed up to save.”
He said: “But employee take up in our trial, and in similar models, is low. Finding ways to support people to overcome the behavioural barriers to getting started with short-term saving is a critical area for financial resilience research.”
Rolhat Zen-Aloush is a reporter at FTAdviser's sister publication Pensions Expert