Context
The Covid-19 pandemic has sharpened the focus on the importance of having a savings buffer to protect against financial shocks.
Nest Insight is establishing a programme of research on the feasibility and value of UK workplace emergency saving schemes (including so-called sidecar saving schemes which are wrapped up with payroll pension saving schemes). Their interest in these schemes derives from an existing international evidence base from which several inferences can be made:
- Emergency savings bring significant benefits to people’s wider financial wellbeing.
- These benefits extend to longer-term outcomes, such as providing a platform for retirement saving.
- Many people in the UK lack even a low level of accessible savings for use in an emergency.
- The workplace has proved successful in providing access to other financial schemes.
These form the premise of the research programme and are the primary basis for the review.
The study
The purpose of the review was to inform Nest Insight’s research programme on workplace emergency saving schemes. The aims of the review were:
- To gather, summarise and synthesise as much insight as possible on saving through the workplace in any form, and an understanding of the underlying premises of doing so, from a wide range of sources.
- To identify existing practical examples of such schemes and evaluate the effectiveness of these where possible.
- To draw conclusions about the strength of the case for workplace emergency saving schemes and highlight gaps in the evidence to pursue via Nest Insight’s own research programme.
The authors hypothesise that offering payroll deduction emergency saving can help people build financial wellbeing, including in retirement, particularly when provided through sidecar schemes which allow for emergency savings to rollover into pension savings when emergency saving targets are met.The study used an inclusive approach to the consideration of the evidence - which included academic, grey research literature, anecdotal evidence and publicity materials identified in online searches and through contacts in the UK and US – and deliberately did not exclude any evidence on the grounds of robustness.
Key findings
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Wider financial wellbeing: Having even small levels of liquid savings correlates positively with outcomes such as avoiding financial hardship, poor financial resilience, financial stress and lower productivity. It is also positively associated with positive attitudes to managing money.
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Longer-term outcomes: Having liquid savings can help protect money for use in retirement.
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Levels of access to emergency savings: 11.5 million people in the UK are estimated to have less than £100 in savings, and this is more common among those on low-to-moderate incomes.
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Workplace schemes: Providing any mechanism to support saving in the workplace makes a positive difference to levels of savings. Saving via payroll and through automatic enrolment support this. There is an appetite for such schemes among employees, employers and providers.
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Practical examples of workplace emergency savings schemes: There is growing interest and innovation in the UK and US, but it is too early to draw conclusions about scheme effectiveness. Financial incentives to join or save into schemes appear to be important. Schemes may help people develop a habit of regular saving and might improve individuals’ financial resilience and wellbeing. Schemes appear to most beneficial for those in greatest need.
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Strength of case: Evidence for the premises which underpin the research programme are stronger than for the study hypotheses (for which the evidence is limited, emergent and largely anecdotal to date). That evidence is nonetheless indicative of the benefits for individuals in participating in schemes, but there are particular challenges around awareness and participation rates.
Points to consider
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Methodological strengths/weaknesses: The authors emphasise in their conclusions that an important goal of the review was to ‘restate the evidence supporting optimism about workplace emergency saving …models’. In so far as this optimism was a driver for their wider research programme, pursuance of this goal potentially compromises the author’s objectivity in relation to their review that evidence.
- The authors note that they did not assess the quality of the evidence they present and were deliberately inclusive of evidence which was not expected to be robust.
- The authors note the difficulty in disentangling the benefits of savings and of income when interpreting the influences on financial behaviours and other outcomes and that correlations should not necessarily be interpreted as
causal relationships.
