A joined-up approach to supporting both emergency and retirement savings
The revival of the Pensions Commission provides an important opportunity to examine the long-term challenges facing the UK’s pension system, including how to improve retirement outcomes for people on lower incomes who face the greatest risk of poverty later in life.
For many households, the challenge is not simply saving more for retirement but balancing current living standards with future needs, all in the face of ever-tightening budgets. Nest Insight’s research shows that integrating short-term emergency savings with workplace pensions could help address this tension.[1]
Our UK trial of a ‘sidecar’ savings model identified several design principles critical to the success of such an approach, including simple account structures, flexible contributions, automatic payroll deductions and easily accessible savings.[2] But important questions remain about how sidecar savings could be designed at policy level and scaled nationally.
To answer these questions, we are launching a new programme of work bringing together experts from across the financial system and consumer groups to explore how the policy could work in practice. This work will inform a design blueprint to be published in late spring, focusing on key thematic design areas including coverage, contribution structure and the supply-side ecosystem behind an auto-enrolled savings structure.
The financial resilience gap
Too many households lack the savings needed to cope with unexpected financial shocks. In 2024, nearly two in five (38%) UK adults said they could not use their existing savings to cover a £250 emergency expense.[3]
Without a financial buffer, people are more likely to fall into problem debt, experience financial stress and suffer negative mental health outcomes.[4] There are also wider economic effects, including reduced productivity and workforce participation.[5]
Importantly, this is not a problem of a lack of motivation. Almost everyone understands the value of emergency savings and wants to save. The barriers are largely behavioural and practical such as complexity, inertia, low confidence, the friction involved in opening and managing accounts, and the pressures of living on a tight budget.[6]
In other words, the issue is less about willingness to save and more about the difficulty of getting started and maintaining the saving habit.
The retirement savings challenge
At the same time, millions of people are not saving enough for their retirement. The Department for Work and Pensions estimates that around 43% of working-age people – approximately 14.6 million individuals – are under-saving for retirement.[7]
One response to this challenge is to increase default pension contribution rates. For many middle- and higher-income earners, higher contributions could help avoid a sharp fall in their living standards in retirement. But increasing contributions across the board carries risks, particularly for lower earners.
Nest Insight’s research on retirement income adequacy shows that for workers earning only slightly above the £10,000 auto enrolment trigger, the State Pension can already provide a retirement income comparable to or higher than their working-age income, particularly when combined with workplace pension saving.[8]
Raising contributions above current levels for some people runs counter to the principle of consumption smoothing. In these cases, these workers might have enjoyed higher living standards during their working lives if they had contributed less to their pension.
Another concern is affordability of pension contributions. Opt-out rates from auto enrolment have remained remarkably low, even during the Covid-19 pandemic and the recent period of high inflation. But it would be risky to assume there is no tipping point at which pension contributions begin to feel unaffordable.[9]
There is also evidence that increasing pension contributions can crowd out other forms of saving. When minimum auto enrolment contributions increased from 2% to 8% between 2018 and 2019, households largely adjusted by reducing liquid savings or increasing borrowing rather than cutting spending. For every £1 reduction in take-home pay, consumption fell by just 34p.[10]
This suggests that higher pension contributions may unintentionally weaken lower-income households’ ability to build emergency savings.
If contribution rates are to rise, additional safeguards may be helpful in preventing unintended consequences. One potential solution proposed by Nest Insight and others, and gaining increasing attention is the integration of emergency savings into the automatic enrolment system through a ‘sidecar’ savings mechanism.
Rethinking the savings system
Nest Insight ran a multi-year, multi-employer UK trial of the sidecar savings model, where employees saved into an instant-access savings account via payroll alongside their existing workplace pension. Once a pre-set savings target was reached, further contributions were automatically rolled over into the employee’s pension as additional voluntary contributions.
The results showed that sidecar saving can complement – rather than undermine – retirement saving. In our trial, 2.7% of participants made additional pension contributions after just six months as a result of the rollover mechanism, rising to 4.7% after eighteen months.[11] It is likely that this would have continued to grow over time as more people built enough savings to hit their targets. This suggests that building stronger, foundational financial security is supportive of pension saving over the longer term.
From this trial we identified eight design principles that are critical to ensure the success of workplace saving programmes:
- Simple – straightforward account structures and clear, jargon-free communication.
- Flexible – allowing employees to adjust, pause or stop contributions when needed.
- Payroll-linked – making saving automatic through payroll deductions.
- Visible – ensuring employees can see and track their savings.
- Partitioned – separating emergency savings from pensions and everyday spending.
- Protected – giving savers confidence their money is safe.
- Fee-free – ensuring charges do not erode savings.
- Easily accessible – allowing quick access when unexpected costs arise.
Designing a workable policy
While these principles provide a strong foundation, there remain important questions about how sidecar savings could work in practice if adopted at systems level and scaled to reach all employees.
To explore these issues, Nest Insight has launched a new programme of work examining the policy and design considerations involved in integrating emergency savings with the UK’s auto enrolment framework.
As a first step, we convened pension providers, payroll providers, employers, regulators and policymakers for a full-day workshop focused on three broad themes:
- Coverage: should sidecar savings be universal, or targeted towards those most in need of financial resilience?
- Contribution structure: how should contributions be split between emergency savings and pensions, and what should the default settings be? Should contributions automatically switch to pensions once a savings buffer is reached?
- Delivery ecosystem: which organisations are best placed to hold and administer accounts, and how can implementation be made straightforward for employers and payroll systems?
Several areas of broad agreement emerged. Participants emphasised the importance of prioritising simplicity in any policy design and highlighted the need to engage payroll providers early to ensure any new system works smoothly in real-world environments. These principles guided ideas for coverage and contribution levels. It was agreed that more needs to be understood about different payroll systems to understand what could be most feasible from a policy design point of view, and to learn lessons where possible from the roll out of auto enrolment.
The opportunity ahead
Many detailed design questions remain. Should contributions to a sidecar savings account be capped? How should the system work for people with multiple jobs? Who should administer sidecar accounts? How can the policy be implemented without adding undue complexity for employers?
Nest Insight will explore these questions further over the coming months, working together with members of our working group and other technical experts, ensuring we bring together a range of different expertise and perspectives. This dialogue will inform the development of a potential design blueprint to be published in late spring.
The revival of the Pensions Commission creates a rare opportunity to rethink how the UK can best support people to save. Strengthening financial resilience and improving retirement outcomes should not be seen as competing priorities. A well-designed system can help achieve both.
Molly Broome, Research and Policy Lead at Nest Insight
To stay up to date with our latest research and events, sign up to our mailing list.
[1] Nest Insight (2025). Easier to Save
[2] Nest Insight (2023). Workplace sidecar saving in action
[3] Financial Conduct Authority (2025). Financial Lives Survey 2024
[4] StepChange Debt Charity (2015). Becoming a nation of savers, Money and Pensions Service (2022). Adult Financial Wellbeing Survey 2021 Nation of Savers Report
[5] Cebr (2023). Financial wellbeing & productivity in the workplace
[6] Nest Insight (2025). Easier to Save
[7] Department for Work and Pensions (July 2025). Analysis of Future Pension Incomes 2025
[8] Nest Insight (2024). How much is enough?
[9] Nest Insight (2024). How much is enough?
[10] T Choukhmane & C Palmer (2023). How do consumers finance increased retirement savings?
[11] Nest Insight (2023). Workplace sidecar saving in action
