Exploring the potential for opt-out payroll saving schemes

• Context
• The study
• Key findings
• Points to consider

Context

This report is part of Nest Insight’s workplace emergency savings research programme, which aims to explore and understand the potential role for payroll saving to improve financial wellbeing in the UK, and how it might best be implemented. The report states that Nest Insight’s partners for the research programme include BlackRock and the Money and Pensions Service, and that this study was supported by the Financial Conduct Authority’s regulatory sandbox.

Workplace payroll savings schemes have the potential to increase the number of people saving for financial shocks, help people save for the future and thereby support their physical and mental health. There is growing interest in the idea that employers adopt an opt-out approach to such schemes. Opt-out means that someone is enrolled into payroll saving by default but that they retain the right not to save into it if they choose not to.

The study

This report is aimed at providing employers, providers and policymakers insight into some of the context and considerations relating to opt-out payroll savings schemes and an assessment of whether it is desirable and possible for such schemes to be implemented.

The report summarises the views of participants from over 25 employers, savings providers and other industry organisations from across the UK. Views were collected during a series of stakeholder roundtable discussions and interviews conducted in late 2021 and early 2022. The report also draws on two case studies in which organisations have trialled an opt-out approach to payroll saving with their employees.

Key findings

• Acceptability of opt-out schemes: There was widespread belief among stakeholders that the opt-out approach to payroll savings has important value, with high potential benefits for individuals, organisations and society.
• Challenges to implementation: The biggest barrier relates to current regulation and its interpretations, particularly around rules which relate to deductions and legitimate interest. Additional challenges relate to:
  • scale on the supply side because the business model for accessible savings is complex and constrained;
  • organisational fit, as this will suit some organisations and some subsets of employees better than others;
  • administration within payroll systems; and
  • supporting employee engagement.
• Case studies: Employers found legally-compliant ways to implement an opt-out approach, requiring employee consent or contract changes. Initial results evidence higher numbers of employees saving in out-out conditions than in opt-in conditions, and positive feedback from employees. While feasible, however, implementation is not straightforward and there are limitations and perceived risks in doing so.
• Author recommendations: regulatory and legislative changes, most likely in the form of a single Act; a new financial product category that has regulatory considerations built in; amendment to the Pensions Act 2008 to allow for non-liquid and liquid cash accounts to be combined into one umbrella product.

Points to consider

• Methodological strengths/weaknesses: The findings of the case studies are described as early findings and that further details will be published in due course.
  • Where the authors make recommendations, it is not always clear where these derive directly from the evidence collected in the study or from broader considerations and inferences.
• Applicability: It is unclear from the report if the perspectives of all devolved nations of the UK are represented in the study.
• Relevance: The report is relevant to those with an interest in savings and saving schemes, particularly payroll savings schemes.