The Financial Conduct Authority (FCA) has moved to clear up confusion around workplace savings schemes, offering employers reassurance that payroll savings can be implemented without falling foul of regulation.
Currently, just 7 percent of UK employers offer such schemes, according to figures from the Department for Work and Pensions.
The FCA said it recognises that employers have concerns about inadvertently breaching minimum wage rules, straying into regulated financial activities, or misstepping on data protection. In response, it has clarified that opt-in payroll savings schemes are compatible with current regulation. Under this model, employees actively choose to participate. By contrast, opt-out schemes may require legislative change.
This is a significant clarification for HR as it removes much of the uncertainty that has held back adoption and opens the door for more employers to add workplace savings to their benefits strategy.
The intervention comes as figures show financial resilience among a significant proportion of employees is low. One in ten UK adults have no cash savings at all and a fifth have less than £1,000.
Employers that offer workplace savings schemes can help employees build their financial resilience. These types of schemes allow employees to divert a portion of their salary into a savings account directly through payroll. The sums are flexible, so staff can change contributions or stop at any time, but the effect can be powerful.
Research from Nest Insight shows that payroll savings support healthier saving behaviours, reduce stress and help people manage financial shocks. This means workers are less distracted by money worries and more focused at work.
However, there are still areas where employers need to be cautious.
For example, employers must ensure a worker receives at least national minimum wage (NMW) pay for each reference period. Any deduction or payment for the employer’s own use and benefit or expenses connected to the employment would normally reduce pay for NMW purposes, the FCA said. It warned that risks could also arise if employers temporarily hold savings contributions or if charges or delays reduce effective pay.
In terms of complying with regulated activity rules, employers do not normally need FCA authorisation, as long as funds are transferred directly to the savings provider.
“Our view is that workplace savings schemes can be structured in a way that does not involve the employer carrying out a regulated activity, particularly where the funds are transferred to the savings provider rather than being retained by the employer,” the regulator said.
“However, making arrangements for employees to open savings accounts may involve making a financial promotion.”
Financial promotions are another area to exercise caution. The FCA said that factual, educational communications are acceptable, however, persuasive materials encouraging people to sign-up may count as a financial promotion. Anything deemed to be financial promotions must be issued or approved by an FCA-authorised provider.
Another key area is around data protection. The FCA said that sharing employee data with savings providers must be done on a clear lawful basis under GDPR, which could include contract, consent or legitimate interest reasons.
To make this work in practice, the FCA has encouraged employers and savings providers to work together to minimise friction.
It said: “A savings provider can, based on its own risk assessment, apply simplified Customer Due Diligence (CDD) measures if it decides the business relationship or transaction has a low risk of money laundering and terrorist financing.
“To minimise frictions for all parties, including employees, savings providers can receive information needed to carry out CDD from employers, their payroll providers, or employee benefits companies. This is because employers and payroll providers or employee benefits companies are likely to have already got this information as part of their own pre-employment checks.”
In addition, savings providers must also comply with Consumer Duty rules and ensure that schemes deliver good outcomes for employees.
Richard Sweetman, senior consultant at independent financial services and employee benefits consultancy Broadstone, said: “The UK suffers from significantly low levels of savings with millions of people holding little or no cash reserves to protect against financial shocks and provide longer-term financial security.
“Workplace savings schemes can play a vital role, complementing auto-enrolled pension programmes, to help employees improve their financial wellbeing.
“The FCA’s clarity around these schemes and ongoing collaboration with industry stakeholders to promote workplace savings is an important step. We hope to see more employers explore workplace savings plans to encourage regular saving from their employees.
“This can ultimately help reduce money worries by building financial resilience, leading to happier, more engaged and more productive employees in the workplace.”
Moneyappi, a financial wellbeing platform, emphasised that when it comes to workplace savings, the real challenge is not just availability, it’s engagement.
Ray Law, financial wellbeing expert at Moneyappi, said: “Schemes like payroll savings can be life-changing for employees, but they’re often invisible or feel out of reach. To make them work, employers need to help people take small steps, whether that’s showing how saving £10 a week builds into hundreds over a year or linking savings to short-term goals that feel achievable. When employees experience these micro wins, they start to see how these tools can improve their long-term financial picture.”
The provider said that embedding behavioural nudges, education and visibility into workplace savings schemes is the key to success. It warned that without this, schemes risk being underused and failing to deliver the resilience the FCA and Treasury want to see.
“The FCA’s clarity is a big step forward,” added Law. “But for employees to truly benefit, employers need to actively engage them, make the savings journey relatable, and show that small changes add up. That’s when payroll savings will become a powerful driver of financial inclusion.”
