Payroll-based emergency savings schemes can overcome common barriers to saving, help employees build short-term financial resilience and increase long-term retirement contributions.
Speaking at the Benefits Expert Summit, Nest Insight director of research and innovation Jo Phillips highlighted the importance of emergency savings saying “If you don’t have a savings buffer at all, it can really hold people back.”
She pointed out that emergency savings are linked to higher long-term saving and protect against dipping into pensions prematurely. She also explained that financial resilience improves wellbeing, mental and physical health, relationships and engagement at work.
Phillips said: “It goes beyond a savings balance. It impacts wellbeing, productivity at work. People with better financial resilience are happier, and that all means that they’re more in tune at work and able to do a really good job when they’re in work.”
But many UK households lack even minimal savings, affecting people across income levels. According to Phillips, a quarter of UK households have less than 100 pounds in savings while he sixth have no savings at all.
She stressed that it’s not just low-income households that are impact but that around one in five people in the top third of the income distribution have inadequate emergency savings. Phillips observed that the main barriers to saving are not financial literacy or incentives but time, mental load and navigating options.
She emphasised the importance of designing programmes that are tested in real-world settings rather than relying on assumptions.
Phillips said: “We get out and work with employers like ourselves to test things in the real world.”
She highlighted sidecar savings solutions as one approach which combines emergency and retirement savings via payroll to simplify saving and sequence contributions.
She explained: “A sidecar solution is a particular kind of saving via payroll that brings together short term and retirement savings through the same mechanism. Workers sign up to save by payroll. Every payday, their money goes into their instant access savings account until they hit their savings target. Additional savings up to that point are made into their pension.”
Phillips mentioned “Jars”, a specific trial of the sidecar savings approach, which automatically splits employees’ payroll contributions between an instant-access emergency savings account and their pension, helping them build short-term financial resilience while also saving for retirement.
Phillips said building an emergency savings buffer also boosts pension contributions, with 4 per cent of Jars users adding to their pensions after 18 months.
She noted that payroll saving makes participation easier, more persistent and adaptable describing it as a “powerful mechanism”. Opt-out payroll saving, in particular, can increase uptake while preserving choice.
Phillips said: “In opt-out payroll savings, the default is flipped. If you want to save you do nothing. If you don’t want to save, you just have to take a simple step to opt out. It’s really important that this model preserves choice. It’s about helping people to do the things that they want to do already and perhaps making it easier for the people who struggle most to follow through.”
