Rainy day accounts can help low-income employees increase retirement savings but they need support, NEST Insight found during a four-year pilot program.
Supported by the BlackRock Foundation, the Money and Pensions Service and J.P. Morgan Chase, the research unit of the £25 billion ($31.1 billion) National Employment Savings Trust, London, has been working with U.K. employers to test how automatic enrollment contributions can be topped up.
The savings tool known as "Jars," which would automatically add to a retirement account an excess amount saved to a rainy day account, has been offered to over 80,000 employees across the U.K. during the trial.
NEST Insight found that 46% of surveyed employees thought the savings tool would help them. Employees participating in the trial had a £384 median emergency savings balance at 12 months.
Ninety-nine percent of Jars accounts were still active after 18 months and 4% of users were making additional retirement contributions.
"We now know that the sidecar savings model has the potential to address two of the biggest financial challenges for low to moderate income households in the U.K. — not having a buffer to cope with a financial shock today, and not saving enough to achieve a livable, dignified retirement income in later life," Jo Phillips, director of research and innovation at NEST Insight, said in a news release.
"But for sidecar savings, or workplace savings more broadly, to achieve that potential, we have also learned from this pilot that employees need more support to get started with saving, and that's what we're working on now in our trials of opt-out approaches, in which we are seeing hugely promising early results," she added.