Sidecar saving: helping workers save for today and tomorrow

UK savings challenges

Two of the biggest financial challenges for low to moderate income households in the UK are highlighted in the latest CHASM Financial Inclusion Monitor – not having a liquid savings buffer to cope with a financial shock today, and not saving enough to achieve a liveable, dignified retirement income tomorrow. Concern about low levels of both short- and long-term financial resilience is not new. It surfaces in a broad range of discussions; from those around problem debt, to mental wellbeing and productivity, right through to retirement security. The recent Covid-19 pandemic and cost of living increases have shone a light on these concerns, and rightly so: these events have shown that without accessible savings people are vulnerable to unexpected financial shocks and that without this financial security, thinking about saving more into an illiquid retirement account is challenging. The Money and Pensions Service’s UK Strategy for Financial Wellbeing sets a key goal of 2 million more working-age ‘struggling’ and ‘squeezed’ people saving regularly by 2030.

A potential solution

Since 2019, public-benefit research and innovation centre Nest Insight has been trialling a sidecar saving model in UK workplaces. Here an accessible ‘emergency’ savings account is combined with a workplace pension scheme, with the aim of making it easier for savers to achieve an optimal balance of liquid and illiquid savings. A sidecar design is an example of a hybrid solution, in which the functions of two or more consumer financial products that are generally offered separately are combined. Hybrid solutions may be particularly suited to resource-constrained consumers, potentially improving people’s capacity to effectively manage their money.

We knew a sidecar approach had the potential to address saving challenges, but how would employers and employees respond to the idea? How would people use it in reality? And what impacts might it have on financial wellbeing? It was these questions we sought to understand in piloting and evaluating a sidecar savings solution called Jars for the first time in the UK with five large, and varied employers: BT, ITV, StepChange, Timpson and the University of Glasgow.

Employees sign up to save via payroll, setting an amount to save each pay period and a savings target. They can change these settings at any time. They then open an instant-access savings account to sit alongside their existing pension pot. Once the account is set up, employees save automatically every payday, at first into their accessible savings jar. When they reach their savings target, a pensions rollover kicks in. Savings contributions are then sent instead to their pension pot as additional voluntary contributions, on top of their normal pension contributions. Savers can take money out of their accessible savings jar as often as they want. Whenever the balance drops below their savings target, their payroll savings start going back into their saving jar again to fill it back up. 

Sidecar saving supports people to save for 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:

• Most people sign up to save £50-£100 a month. 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 7 in 10 users are still contributing to Jars via payroll.
• 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
• Saving in this way can boost financial wellbeing, with most users saying that saving with Jars had made them ‘better off’ and users frequently talking about the peace of mind that Jars had given them.
• Jars users often grew in confidence over time, with increasing belief in their ability to save, and to manage their finances more broadly.
• The proportion of Jars users making additional pensions contributions is growing over time, from 2.5% of users making additional pension contributions 6 months after signing up to 3.6% of users doing so 18 months after signing up.

But people need more support to get started

Perhaps though, the most important finding from the sidecar trial is that although quite a high proportion of employees think that Jars would help them, very few actually sign up. Over a two-to-three-year period active participation in Jars grows to only around 1% of eligible employees, despite the fact that 46% of eligible employees say they think Jars would help them.

These participation levels are similar to other payroll saving products where signup often remains in single-digit percentages. The problem is that many contextual and behavioural barriers prevent many people who want and need to save from signing up. For example, they may not be confident to sign up to save, or may just not get around to it.

This insight has led us to explore ways to support more employees who want to to get started with saving. The sidecar savings trial has led to three further live Nest Insight trials of opt-out approaches to payroll savings. Taking an opt-out approach to payroll saving means that 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 take action.

An opt-out approach meaningfully improves participation

The early learnings from the opt-out trials are very promising. In one trial we see that the implementation of an opt-out approach increases participation in payroll saving by as much as 50 percentage points. 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 a comparison group who have to sign up themselves.

Could the UK scale emergency savings by evolving the pensions auto enrolment system?

In combination, these workplace savings trials form a robust evidence base which supports the potential of linking emergency saving and retirement saving in ways that make it easier for employers to offer support to their employees, and that help workers to manage competing financial priorities. It’s increasingly apparent that if we think about pension saving in insolation, we miss opportunities to design inclusive solutions that are responsive to household circumstances, and which truly help all individuals to achieve their best possible retirement outcomes. Building accessible short-term savings not only improves short-term financial resilience, but also protects retirement saving.

There has been considerable policy and industry interest in this sidecar savings trial. Many have called for some kind of emergency savings provision to be included in any evolution of pensions auto enrolment policy. Learnings from these trials provide valuable evidence to support the design of any such intervention. The trial results have also contributed to the evidence for the ground-breaking SECURE 2.0 Act in the US, which paves the way for American employers to automatically enrol employees in emergency savings options associated with their workplace pension. We are excited to see where the discussion goes next in the UK.

Key words: Sidecar saving, emergency saving, retirement saving, Nest Insight