REWARD
Could the payroll industry make the UK a nation of savers? The Money and Pensions Service’s UK strategy for financial well-being sets a key goal of two million more working age ‘struggling’ and ‘squeezed’ people saving regularly by 2030. The results of these trials suggest that linking emergency and retirement saving into a hybrid account and enrolling people using an opt-out mechanism may play a role in supporting employees to manage their competing financial priorities. There’s been considerable policy and industry interest in the sidecar savings and opt-out research trials. The evidence contributed to the ground-breaking SECURE 2.0 Act in the US, which builds in emergency saving provisions to retirement saving. Closer to home, many have called for some kind of emergency savings provision to be included in any evolution of pensions automatic enrolment policy, and learnings from these trials provide valuable evidence to support the design of any such intervention. An alternative could also be that opt- out sidecar saving is introduced by payroll providers and bureaus, perhaps in partnership with a credit union, allowing access for small employers to saving tools that are often only accessible to larger workforces. We’ve produced a guide for employers called ‘ Getting employees started with saving ’, which includes our learnings and some case studies on opt-out payroll saving. This is available on the Nest Insight website. If you’re looking to offer sidecar saving or emergency saving on an opt-out basis to your employees, we’d love to hear from you. n
back into their emergency savings account until the threshold is reached once again. Sidecar saving can support people to save both today and tomorrow Results from the trial suggest that saving via payroll in this way can help people build saving habits and to save persistently: l most people sign up to save £50-£100 a month l once people start saving via payroll, they tend to continue. Almost all Jars users still have an active account after 18 months. Very few people leave Jars and even fewer close their savings accounts. 20 months after signing up to Jars around seven in ten users are still contributing to Jars via payroll l Jars supports people who have previously struggled with saving to keep going. Qualitative research and survey data shows that some people who have saved persistently with Jars have previously struggled to build a savings habit l saving in this way can boost financial well-being, with most users saying that saving with Jars had made them ‘better off’ and users frequently talked about the peace of mind Jars had given them l Jars users often grew in confidence over time, with increasing belief in their ability to save, and to manage their finances more broadly l the proportion of Jars users making additional pensions contributions is growing over time, from 2.5% of users making additional pension contributions six months after signing up, to 3.6% of users doing so 18 months after signing up. This research pilot was supported by the BlackRock Foundation, the Money and Pensions Service and JPMorgan Chase. But people need more support to get started Those using payroll saving benefit from the peace of mind that comes from having an emergency saving pot, while the rollover feature makes it effortless to make ad hoc
pension contributions. Yet, despite almost half (46%) of eligible employees thinking they would benefit from Jars, only 1% get around to signing up in the first couple of years. The contextual and behavioural barriers that stop people signing up – like a lack of confidence or simply never getting round to it – are the same barriers that affect many payroll saving products, with signup often in the single digits.. This is despite a strong desire to save. So how do we support those who want to save to do so without reducing employees’ control over their money? Taking an opt-out approach to payroll saving means employees automatically start saving unless they choose not to. If they want to start saving, they don’t need to do anything. Everything is done for them. Only people who don’t want to save have to act – a quick and simple one-step email or check box to opt out of saving. An opt-out approach supports more people to build their financial resilience Nest Insight currently have three opt-out pilots live, and the results across models and employers are very promising. In all three, the implementation of an opt-out approach increases participation dramatically. For one employer, the sign-up rate for those who need to take action to save is about 1% after four months at the organisation. When the mechanism is switched to opt-out, this becomes 48% participation. Early evidence also suggests that rates of saving are higher for those who were automatically signed up to save if they didn’t opt out, than for the comparison group who must sign up themselves.
Nest Insight Nest Insight is a public-benefit research and innovation centre. Our mission is to find ways to support people to be financially secure, both today and into retirement. We conduct rigorous, cutting-edge research, working collaboratively with industry and academic partners to understand the financial challenges facing low- and moderate-income households. We use these data-driven insights to identify and test practical, real-world solutions. Our findings are shared widely and freely so that people around the world can benefit from our work. For more information visit http://ow.ly/uHAo50Omjut. To hear more about our research, you can also email the team at insight@nestcorporation.org.uk.
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| Professional in Payroll, Pensions and Reward |
Issue 91 | June 2023
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