Leading Conservative MPs are calling for a change to the auto-enrolment rules, to compel pension providers to offer a ‘sidecar’ savings option.
The Tory Reform Group, led by former minister Damian Green MP, says the proposal would encourage employees to build emergency savings and help with the post-Covid recovery.
Nest is already piloting a similar scheme, although evidence suggests that ‘opt-ins’ remain relatively low.
The proposals, which have been reported in FT Adviser, are part of a series of measures, designed to bring “the country back together and deliver a recovery that serves those most hurt by the pandemic”. The Conservative members have said the government should consult on introducing this savings mechanism which would build on the current auto-enrolment policy, to encourage greater savings among the wider population and improve overall financial wellbeing.
Nest’s sidecar projects — which is now known as ‘Jars’ — is currently being tested with BT, StepChange, the University of Glasgow and Timpson allow employees to split contributions between an AE pension and a savings account which can be accessed as when people need the funds.
Employees set a rate of contributions and a savings target. When they have build a ‘rainy day’ savings pot their contributions are then fully invested in their pension. But if the savings pot is depleted their contributions are split again between the pension and savings pot.
Data published last year by Nest Insight though, showed that while employers and employees were attracted to a ‘sidecar’ savings proposition voluntary take-up remained low – although Nest estimates that it is still comparable to trails of savings models by others. It said there were a number of behavioural barriers which seemed to inhibit employees from signing up, even when they expressed an interested in doing so.
It said affordability may remain an issue, with some employers also viewing this accounts as being “too liquid”. Nest’s report into this trial highlighted the potential role of master trusts in supporting emergency savings tools.
Nest says it plans to explore further how people can be supported to sign up and save by examining the impact of different communication approaching and behavioural interventions.
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