The project will explore whether the sidecar savings model can improve workers’ financial resilience today and in retirement by creating an optimal level of savings. According to research by the Money Advice Service (MAS), many UK workers are currently in a vulnerable position. 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.[1]
How the sidecar savings model works:
In a sidecar structure, contributions over and above the auto enrolment minimum would be managed through a mechanism designed to create an optimal level of liquid savings, while also maximising long-term savings. This would be administered as follows:
1. Contributions paid into the combined account structure would at first be distributed between the emergency savings account and the pension pot.
2. When the balance in the emergency account reaches a predetermined threshold level, known as the ‘savings cap’, all contributions would start ‘rolling’ into the pension pot.
3. 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 illiquid pension pot.
The trial is due to go live within workplaces over the coming months, with workers beginning to make contributions at the start of 2019. Timpson will be the first employer to roll the trial out within their organisation of over 5,600 workers.
Workers participating in the trial will be monitored for two years to assess sign-up rates, how much they save, and the impact on their financial wellbeing.
The JPMorgan Chase Foundation and the Money Advice Service (MAS) will be providing support for the trial. MAS will also be working with NEST Insight directly on the research, along with Professor Brigitte Madrian and the Harvard Kennedy School. The sidecar account will be provided by Salary Finance, working alongside a NEST pension pot.
Hang Ho, head of the JPMorgan Chase Foundation for EMEA and LatAm, said: “Reducing the impact of unexpected expenses on low income households through the development of innovative solutions designed around people’s lives is vital. Our new partnership with NEST Insight will facilitate testing of a unique emergency savings product provided through the workplace to help low-income workers build resilience. We believe this has the potential to improve hundreds of lives.”
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. This is why the Money Advice Service is delighted to be partnering with NEST Insight to test the innovative concept of Sidecar Savings. We hope that it 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.”
Asesh Sarkar, CEO and co-founder at Salary Finance, said: “Our latest research report, The Employer's Guide to Financial Wellbeing, found that 18.6 million working people in the UK (53%) lack financial resilience and 13.5 million regularly run out of money. Our mission at Salary Finance is to help millions of employees around the world become financially healthier and happier. We are delighted to use our award-winning salary save product to enable the NEST Insight sidecar savings research trial. The product has the potential to address a significant problem in society - the lack of emergency savings employees have - and we are excited to see the impact it has, working with progressive and caring employers like Timpson."
James Timpson, chief executive at Timpson, said: “Our colleagues are the heart and soul of our company, and when they’re happy they provide the very best service to our customers. Financial wellbeing is an important part of this. We know that money worries can have a really negative impact on colleagues’ health, happiness, and productivity at work. We’re delighted to be taking part in NEST Insight’s sidecar savings trial to help our employees become more financially resilient, both today and into their retirement.”
[1] UK Financial Capability Strategy for working-age people, Money Advice Service (2016)
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