Liquidity and workplace pensions

Around the world, policy makers and researchers are launching a range of initiatives designed to encourage, on the one hand, short-term liquid savings, and on the other, illiquid savings for retirement. These two types of initiative are generally undertaken in isolation, often leading to a tension between liquid and illiquid savings. The implicit message is that long- versus short-term savings is a zero-sum game, where each type of savings is competing for a fixed share of individuals’ assets.

About the project

Recent work has challenged this perspective. Researchers in the US have proposed an approach that combines liquid and illiquid savings in a way that’s optimised around the needs and preferences of the saver. The argument is that an appropriate balance of liquidity will enhance people’s overall financial wellbeing, both in the short term and through into retirement.

Towards the end of 2018, we officially launched a UK research trial to test the impact of a combined savings product, often referred to as the ‘sidecar savings model’, where a liquid ‘emergency savings’ account is linked to a traditional defined contribution pension pot. This hybrid savings tool is being offered by participating employers in the workplace. Contributions are deducted automatically through payroll and managed to create an optimal level of liquid emergency savings, while also increasing long-term savings. Over the next two years, we’ll be examining the impact of the savings tool and following workers on their savings journey to measure:
  • Who sign ups to use the savings tool? What levels of participation do we see? Does it attract new savers?
  • How do people use the savings tool? How much do they save? How often and why do they withdraw money from their emergency savings? And does it help them to save more for retirement?
  • Does the savings tool have a positive impact on workers’ financial resilience and wellbeing?

Watch our video to find out more:

Project partners

This trial is supported by BlackRock, the Money and Pensions Service (MAPS) and the JPMorgan Chase Foundation. The research is being led by Professor David Laibson of Harvard University working with Nest Insight, MAPS and Professor Brigitte Madrian of Brigham Young University. Salary Finance is the trial’s savings technology partner, providing the savings tool which will be introduced in participating workplaces as ‘Jars’. Jars allows employees to set up regular payroll deductions to save money into their emergency savings jar, provided by Yorkshire Building Society, and, when they reach their savings target, to save more into their existing workplace pension.

Further information

You can find out more about the sidecar model and our research trial in the following blogs, press releases and Nest Insight publications:

Interested in taking part?

If you’re interested in taking part, and would like to find out more, please contact Jo Phillips: jo.phillips@nestcorporation.org.uk