Shoe repair organisation Timpson will be the first employer to trial a new ‘sidecar savings’ model for auto-enrolment, launched by Nest Insight.
In a sidecar structure, contributions over and above the auto-enrolment minimum are managed through a mechanism designed to create an optimal level of liquid savings, while also maximising long-term savings.
The Nest project will explore whether the model can help improve workers’ financial resilience both immediately and in retirement. According to research by the Money Advice Service (MAS) in 2016, only 44% of the UK population have £500 or more in liquid savings to hand for emergencies, and 26% have nothing.
The trial is due to go live within workplaces over the coming months, with employees starting to make contributions at the beginning of 2019. Timpson’s 5,600 workers will be the first to participate.
James Timpson, chief executive at Timpson, said: “Our [employees] are the heart and soul of our [organisation], 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 [employees’] 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.”
Within the sidecar savings model, contributions paid into the combined account structure will at first be distributed between the emergency savings account and the pension pot. When the balance in the emergency account reaches a predetermined threshold level, known as the ‘savings cap’, all contributions will start ‘rolling’ into the pension pot.
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 will once again commence being divided between the emergency account and the illiquid pension pot.
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 JP Morgan Chase Foundation and MAS will be providing support for the trial. MAS will also be working with Nest Insight directly on the research. The sidecar account will be provided by Salary Finance, working alongside the Nest pension pot.
Michael Royce, strategic lead on budgeting and saving at MAS, 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 MAS 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.”