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Trial to help workers build £1,000 emergency savings pots

Trial to help workers build £1,000 emergency savings pots

A new initiative is being trialled to help workers build emergency savings for unexpected bills and events, in the same way they add to their pension pots. 

The "sidecar savings" scheme will let workers save directly from their salaries to build a pot of up to £1,000.

The aim of the scheme is to encourage workers to develop a short-term buffer against financial emergencies – meaning they will be less likely to fall back on high-cost credit options such as payday loans.

This trial will be rolled out over the coming months, with high street chain Timpson the first company to offer the scheme to its 5,600 employees.

It is being launched by the Government-founded workplace pensions scheme Nest, and is supported by the JPMorgan Chase Foundation and the Money Advice Service (MAS). It follows MAS research showing that 26% of UK workers have no savings, while only 44% have £500 or more in ready cash for emergencies.

See our Top Savings Accounts guide for more info on savings.

How will the scheme work? 

The savings will be linked to the employee's auto-enrolment pension scheme. 

Auto-enrolment is a scheme which says companies must opt their employees (aged 22 or older and earning at least £10,000 a year) in to paying towards a private pension – a savings scheme to provide money for you in later life, on top of the state pension. Under the scheme, the company must also contribute to your pension – unless they choose to opt-out.

But under the "sidecar savings" trial, workers will have to opt-in to the scheme, after they've been briefed on how it works – no-one will be enrolled automatically. Here's what we know so far:

  • Any money the employee puts into the scheme above minimum auto-enrolment level – which is currently 3% of earnings, although this will rise to 5% from April – will be divided between the emergency savings pot and the pension scheme.

  • A "competitive rate of interest" will be paid on the savings – we've asked how much this will be, and how it compares to the current top easy-access savings rate of 1.5%.

  • Once the savings pot hits £1,000, all money will be paid into the pension rather than being split.

  • Any money put into the pension scheme will be locked away, but cash in the savings pot can be withdrawn if the employee needs it. There will be no penalty or specific criteria for withdrawing the cash, although the pot is designed to be used only in emergencies.

  • If the employee makes a withdrawal and the savings pot falls below £1,000, any further money they put in will again be split between the savings and pension schemes, until the savings pot is again at the £1,000 level.

What happens next?

The trial will run for two years, and will be monitored to assess how many people sign up, how much they save and whether it affects their financial resilience.

At the moment, the trial will use Nest pension pots, and savings pots provided by financial technology company Salary Finance, but other providers may join in the future.

What does the Government say?

A spokesperson from the Department for Work and Pensions said: "Nest's 'sidecar' approach is an innovative concept, potentially offering a new way for people to build up a financial buffer to protect them from unexpected bills while continuing to save in workplace pensions.

"We are interested to see how the trial develops and will be watching it closely."

Timpson chief executive James Timpson said: "We know that money worries can have a really negative impact on colleagues' health, happiness, and productivity at work. We're delighted to be taking part in Nest Insight's sidecar savings trial to help our employees become more financially resilient, both today and into their retirement."