Liquidity and retirement savings: what’s the right balance?

Since we announced the project at our conference last year, we’ve continued to develop our thinking around our ‘sidecar savings’ project. We were fortunate to be joined by experts from across the industry at a recent roundtable to discuss the idea in more detail, and have also worked with the Money Advice Service to deliver some qualitative research to better understand consumer reactions to the idea. Both the roundtable and the research are summarised in our latest report, Liquidity and retirement savings: what’s the right balance (PDF).

We’re learning a lot from our own research and from speaking to others. We know the idea of a workplace ‘emergency savings’ account is popular both among potential users and with people across the sector. The idea that people need a bit of a buffer really resonates. People have rightly pointed out that it needs to be carefully positioned as being complementary to other savings products and to auto enrolment, and not as an alternative to either. But there is nonetheless strong support, in particular from employers, for the idea that this is something that can be done to help people become more financially resilient. Workers also like the idea of having their employer take care of their regular savings for them, and that they’ll put the money aside before it hits their bank account.

We’ve heard many different views around design questions such as contribution levels, the level of the threshold after which all contributions flow to the pension, and about the approach to any restrictions on liquidity. On the latter, we are clear that any trial will need to give people complete, unrestricted access to their money, and we think a lot can be done to target use of these funds by simply framing it as ‘for emergencies’. On the other design parameters, we continue to look at the evidence, as well as to consult with potential participating employers as to what might work for their workers.

Finally, people are interested in how take-up of sidecar might work. Sidecar mimics the ‘payroll deduction’ simplicity of retirement saving but cannot replicate ‘automatic enrolment’ under the current regulatory framework. But we are exploring ‘active choice’ models to see what can be done to maximise take-up of the trial, for example.

These are some of the themes we’ve heard, and of course there are many other questions about how the sidecar idea might work, and which versions of it might best lend themselves to our trial. We’re making great progress bringing together the coalition of organisations to deliver the trial, and hope to be able to announce two funding partners supporting the work in a few weeks’ time. In the meantime, if you want to know more or get involved with the work, please get in touch: insight@nestcorporation.org.uk

Will Sandbrook, executive director of NEST Insight