Matthew Blaksted, head of Nest Insight Research, explains why the sidecar savings model could help to improve the financial resilience of workers and give employers peace of mind
Thanks to auto enrolment, millions of people are now building up meaningful pension pots to help them save for a more comfortable later life.
However, many of these people – particularly those on lower and moderate earnings – don’t have enough in liquid savings to deal with financial shocks, such as the car breaking down. When this happens, they may stop pension contributions, reduce spending on essentials or turn to pay day lenders or credit cards.
Financial shocks can cause acute financial hardship and debts can quickly turn into debt spirals which can cause high levels of stress.
Why does financial wellbeing matter for employers?
Poor financial wellbeing can cause higher levels of stress and anxiety, which in turn can lead to lower productivity and absenteeism in the workplace. It’s important to note that it’s not just about how much employees earn, it’s about how they use and manage their money, and the level of control they feel they have over their finances.
What can be done to help address this?
Nest Insight has recently launched a 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 an illiquid pension pot.
The aim of the trial is to see if this kind of savings product can improve workers’ financial resilience today and in retirement by helping them to build up some emergency savings whilst also saving more for the future.
Watch this short video on the sidecar savings model to find out more about the trial and how it works.
Nest Insight is a collaborative research unit, set up to understand and address the challenges facing Nest members and other defined contribution savers. Visit nestinsight.org.uk to find out more.