NEST to trial sidecar savings
The launch by NEST of their sidecar savings is fascinating to observe for any professional working in the pensions industry. We have a long held view that a combination of regular saving out of pay into long, medium and short term savings vehicles is the best way to secure your financial planning needs.
For a long time the ability to provide holistic workplace savings has been the domain of larger employers. Those who can offer good pension contributions and allow staff to participate in other savings such as share options schemes. All of which serves to secure good employees, tie them into the business and reward them well if the business does well.
How the sidecar savings model works:
“In a sidecar structure, contributions over and above the auto enrolment minimum would be managed through a mechanism designed to create an optimal level of liquid savings, while also maximising long-term savings. This would be administered as follows:
- Contributions paid into the combined account structure would 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 would 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 would once again start being divided between the emergency account and the pension pot.”
Who provides the savings vehicle?
It is also interesting that NEST have chosen a FinTech business, Salary Finance, to support the sidecar savings vehicle. They will provide the mechanism by which the sidecar savings reach a Yorkshire Building Society account.
Who is trialling sidecar savings?
Timpsons, the high street repair shop business is trialling sidecar savings with their 5600 staff. They plan to launch from the start of 2019.
How can employers help employees save more?
The final increases in auto enrolment contributions taking effect in April 2019. The additional cost of contributions can be partially mitigated from the following:
- rise in minimum living and voluntary wages
- the increase in the personal allowance
- using salary exchange on employee pension contributions to save National Insurance.
There are already ways to help encourage staff to save any extra salary for the future or for rainy day purposes. Such as workplace savings platforms that offer pension and other savings like ISA accounts.
But, if an employer’s workplace savings plan does not already offer the broader means of saving via the payslip, it may not be the right workplace savings vehicle for their future needs. Especially with the traction NEST sidecar savings are likely to achieve. So, employers may want to consider how they accommodate sidecar savings using their chosen pension company offering.
So far Auto Enrolment has shown how default savings has massively lifted the numbers saving for retirement. Plus opt out rates haven't reached the predicted levels, evidencing auto savings work.
If some form of automated rainy day savings can be sewn into retirement savings via default salary deductions, we are certain to see improved financial wellbeing in the workplace.
Like most successful ideas, it is often the simple ones that work. It will be interesting to learn more about the outcome of this trial. It looks like it will deliver good outcomes for employees and employers alike.