The research arm of government-backed master trust Nest has launched an ‘opt-out’ payroll savings approach that aims to help employees build up an emergency fund.
The trial, launched by Nest Insight in collaboration with Suez recycling, will see around 600 new employees of the recycling and waste management company over the next six months being automatically signed up to payroll saving with credit union Transave, if they don’t opt out.
Together with academics Sarah Holmes Berk, John Beshears and David Laibson from Harvard University, and James Choi from Yale University, Nest Insight will assess the effectiveness of the approach, which will be compared with another group who will continue to be offered payroll saving on an opt-in basis.
Research will be conducted for one year to assess participation rates, savings behaviours, and the impact on employee financial wellbeing, Nest Insight said.
The trial will be drawing upon early findings from the sidecar savings project, which combined short and long-term savings goals.
This sidecar model, which has been tested with several companies, saw savers split contributions between a Nest pension and an emergency liquid savings pot.
After signing up to the sidecar, employees set a rate of contributions and a savings target. When the money was deducted from their pay, contributions above their auto-enrolment payments were diverted into an interest-bearing savings account labelled for emergency savings.
Once the emergency pot was full, the entirety of contributions went towards retirement savings, but if the pot was drained the split began again.
However, in the new trial, only savings will be included, building on the approach used for pensions auto-enrolment, where savers only have one decision to make, which is whether to opt out.
Suez employees will be able to make changes to the amount they save if they want to, quickly withdraw their money if they need it and they can stop saving at any time.
According to Guy Opperman, minister for pensions and financial inclusion, “employers have a vital role in helping their staff build greater financial resilience”.
He said: “Schemes offered by employers, such as payroll savings, can help people build a safety net that enables them to withstand short-term financial shocks.
“Workplace emergency savings schemes take up is too low and I look forward to reviewing the findings of this trial."
Jo Phillips, director of research and innovation at Nest Insight, said: “We know from our sidecar saving trial that a lot of employees like the idea of building up short-term savings through automatic payroll deduction, but many don’t get around to signing up even if they intend to - a pattern that’s often seen with other voluntary savings solutions and workplace benefits.
“In this trial, we’re excited to see what happens when you overcome inertia and remove sign-up friction by switching the default if you do nothing from ‘not saving’ to ‘saving’ whilst, importantly, preserving choice. The approach has the potential to be a real game-changer for financial wellbeing by supporting employees to follow through on intentions to save.”