Timpson first to take plunge on Nest sidecar trial

Pensions and financial inclusion minister Guy Opperman has urged financial services companies to follow Timpson’s example, warning that they will lose their credibility if they are not seen to be offering their own employees the flexibility they advocate to others.

Opperman also told Pensions Expert the Department for Work and Pensions would consider adapting the concept into the UK’s auto-enrolment system if thorough tests prove successful.

Sidecars involve deductions from a member’s payroll being split between the defined contribution pension pot and a liquid savings vehicle, which in the Nest trial will be labelled an “emergency savings” funds.

The principle of ensuring people have savings over and above a pension is something that we all support

Guy Opperman MP

When this savings account reaches an appropriate level to ensure resilience to income shocks, the entire contribution will go into the pension pot. If the emergency account is drawn down, it will once again start to be topped up.

James Timpson, chief executive at Timpson, said in a statement: “Our colleagues are the heart and soul of our company, and when they’re happy they provide the very best service to our customers.

“Financial wellbeing is an important part of this. We know that money worries can have a really negative impact on colleagues’ health, happiness, and productivity at work,” he added.

Minister pressures industry

Meanwhile, Opperman used his speech at the launch event to push financial services employers to match their words with actions and join in the trial.

“I also want to slightly pressure all of you,” the minister told a crowd of industry figures. “If you’re not doing it please tell me who is… I’d slightly question why you’re here.”

Opperman added that the concept of a sidecar would be particularly useful to many in his Hexham constituency and other areas that have experienced deprivation. He also signalled that sidecars could one day become part of government policy, albeit not before the idea has been proven.

“The principle of ensuring people have savings over and above a pension is something that we all support. We need to do the sidecar pilot, we need to persuade individual companies to sign up… we then need to do a proper development of it but I’d certainly never say never,” he said.

Labelling discourages spending

Nest’s trial will measure sign-up rates, levels of saving and the impact on financial health among participants. The sidecar will be provided by financial wellbeing company Salary Finance, with the research undertaken by the Money Advice Service and the Harvard Kennedy School, while the JPMorgan Chase Foundation will provide support.

The sidecar will not have any restrictions on withdrawals, but will instead try to nudge savers away from draining their pot regularly by labelling it an emergency pot.

“It’s essentially about how you frame the account,” said Matthew Blakstad, head of Nest’s Insight unit. He cited a behavioural study from India, which showed that placing Indian day labourers’ pay in two envelopes rather than one made them more likely to save.

It is also hoped that the fact sidecars are filled from payroll will have a positive impact on saver behaviour.

“We are running a trial, and we know that self control is one of the big problems around money,” Blakstad said, but added that he would not rush to judge those spending sidecars on “what we might see as quite trivial” outgoings.

“If by using it that way they have avoided drawing on costly debt they might well be better off,” he said.

Withdrawals erode retirement savings

Richard Butcher, chair of the Pensions and Lifetime Savings Association and managing director of professional trustee company PTL, applauded the idea of enabling people to save for a pension by boosting their financial resilience.

Savers on low incomes may be put off pension saving because it reduces their ability to deal with unexpected shocks. Only 44 per cent of the UK working population have £500 or more in emergency liquid savings, and 26 per cent have nothing, according to the MAS.

However, Butcher highlighted the risk of people eroding their long-term savings by short-term spending. He said employers will be unwilling to put their contributions towards spending that does not help them with their workforce succession plans, and that charges may creep up if set-up costs on pensions are no longer able to be spread over 30 to 40 years.

“In principle it’s a good idea but there are risks with it,” he said. “I think we ought to tread quite carefully.”