It’s Monday morning, your car has broken down on the side of the motorway…
Or you receive an unexpected fine in the post…
Or you need to pay for three lots of school shoes at the same time…
Or your heating bill is more than you were expecting…

According to research by the Money and Pensions Service, only 44% of UK working age adults have £500 or more in savings on hand, and 26% have no savings at all. This means that a financial ‘shock’, like the examples given here, could leave many people with little choice but to seek money from elsewhere. This may include turning to friends and family, using existing credit cards, or reducing spending wherever possible. But some people might have to cancel pension contributions to free up cash or resort to high cost sources of borrowing which, if not managed carefully, could lead to debt spirals.

Why are employers concerned?

Analysis by Salary Finance suggests that over a third of UK employees have money worries. If persistent, financial pressures can cause excessive levels of stress which can have a knock-on effect on an individual’s health and productivity at work. Research by the Social Market Foundation found that:

  • Four in ten workers (40%) say money worries have made them feel stressed over the last year.
  • A quarter (25%) say they have lost sleep over money worries.
  • One in eight workers (12.5%) report that money worries have affected their ability to concentrate at work.
  • One in twenty workers (6%) have missed work in the last year due to money worries.

oney problems and mental health issues can be partners in a vicious cycle, where worsening financial difficulties can lead to serious health concerns, and vice versa. According to their research, around half of adults with a debt problem also have a mental health issue.

Employers are becoming increasingly aware of these issues and their impact. So, what can organisations do to help improve the financial wellbeing of their workforce?

Introducing sidecar savings

The sidecar savings model was proposed by a group of US researchers to help people create a better balance of short and long-term savings that fits more closely with their financial needs and preferences. This hybrid approach combines an accessible ‘emergency’ savings account with a traditional defined contribution pension. Money is paid in via payroll deduction, so employees can ‘set and forget’, leaving the savings tool to build up money in their emergency account and pension pot, and support them to become more financially resilient today and in later life. It also enables people to pre-commit to put more money aside for their retirement once they’ve built up enough emergency savings for today.

Nest Insight is currently running a trial of the sidecar savings concept in the UK. With the combined support of the Money and Pensions Service, the JP Morgan Chase Foundation and the BlackRock Foundation, we are working with a research team led by Professor David Laibson of Harvard University and several employers in different sectors. In workplaces, the sidecar model will be introduced to employees as the ‘Jars’ savings tool. They’ll sign up online via our savings technology provider, Salary Finance, and get a new savings account provided by Yorkshire Building Society. The trial will also involve different pension providers, depending on the schemes already in place at each employer.

So, how does the Jars savings tool work?

Workers who want to use the Jars savings tool simply need to sign up online, decide how much they want to save from each pay packet, on top of their normal pension contributions, and set an emergency savings target. Changes can be made to the contribution amount and savings target at any time.

Their chosen amount is deducted from their salary each pay period via payroll deduction. At first this money will go into their emergency savings ‘jar’. Once the savings target is reached, the salary deduction will be sent to the saver’s pension pot, on top of their usual pension contributions. So, at this point, they’ll be putting more money aside for their retirement.

The saver can take money out of their emergency savings jar as often as they want. So, if their car does break down, they can dip into their savings to get it repaired. Whenever the balance drops below the savings target, contributions start going into the emergency jar again until their balance is built back up.

What does this mean for workers?

For workers, the tool is designed to be easy and straightforward to use. A large part of this simplicity is thanks to the payroll mechanism that enables a regular flow of contributions to be smartly allocated to either emergency savings or additional pension savings. After they’ve signed up, the rest is done for them. So, whilst they’re busy with work and home life, their emergency savings pot will be steadily building up and there ready for them when they need it most. And, if they reach their savings target, they’ll then start saving more for retirement.

As part of the trial we will be researching the impact on different areas of financial wellbeing and resilience, as well as who is most likely to use the tool and how they use it in practice.

Progress so far

Employers with 1000+ workers have the chance to get involved in the first UK trial of the innovative sidecar savings tool idea. Timpson was the first organisation to sign up and they’ve already begun their two-year trial, offering over 5000 of their colleagues the chance to save for today and tomorrow. A number of other employers are also working with us and getting ready to go live over the next few months, including the University of Glasgow and Yusen Logistics.

When we asked Jim Ross, Head of Pay and Pensions at the University of Glasgow why they were keen to get involved he told us, ‘We are extremely supportive of staff financial wellbeing and the idea that a sidecar savings scheme could assist people to save a little extra for their retirement and still have a “rainy day fund” for immediate emergency access was very appealing’.

We’ll be sharing early-stage learnings next year, with further reporting of results to follow through the course of the trial.

Getting involved

If your organisation would like to find out more about the trial or is interested in taking part, please get in touch: insight@nestcorporation.org.uk

Nest Insight is a collaborative research unit, set up by Nest Corporation to understand and address the challenge facing Nest members and other defined contribution savers. For more information, visit Nestinsight.org.uk