NEST Insight is starting a trial to see the effectiveness of adding an emergency savings sidecar account to a retirement plan.
NEST Insight, which is the research unit of the £13 billion ($16.8 billion) multiemployer defined contribution plan National Savings and Employment Trust, London, found that DC plan participants are keen to save for emergencies through rainy day accounts, known as sidecar accounts, but they need incentives.
In a rainy day account model researched by NEST Insight, plan participants could accumulate savings through payroll deductions made directly to sidecar accounts. When savings reach a certain level in the rainy day account, any additional savings are moved into the retirement account.
The research into emergency saving in connection with retirement planning was launched by NEST Insight in 2018. It has shown that sidecar accounts are more effective when their design takes into consideration short-term and long-term objectives.
Starting in January 2021, NEST Insight will start to gather data from employers participating in the sidecar account trial. The employers are retailer Timpson, the University of Glasgow, telecommunications company BT, and StepChange Debt Charity.
The trial aims to test the effectiveness and impact of a workplace savings tool called Jars, which combines short- and long-term savings.
"So far, we've consistently seen that employers and employees are attracted to the idea of a payroll deduction emergency savings tool with a pension saving rollover. People like the idea of being able to 'set and forget,' allowing the savings to build up automatically before their wages reach their bank account. And, importantly, to have the peace of mind that a buffer of short-term savings can bring," Jo Phillips, NEST Insight's director of research and innovation, said in a news release.
Will Sandbrook, executive director of Nest Insight, added in the release: "The importance of having liquid savings for the short-term is however widely acknowledged, and this has never been (more true) than in the current COVID-19 crisis, when so many people are suffering from a lack of short-term accessible savings. We know that in cases of severe financial difficulty, the impacts felt today may also have a knock-on effect in later life."