Around one in five employers are planning or considering putting in place a pensions “sidecar” arrangement, allowing employees to divert part of their pension contribution to be used to build an emergency savings pot, according to a Willis Towers Watson (WTW) survey.
Just 1% of those surveyed – 171 organisations across different industries in the UK – already have a pensions sidecar in place.
According to WTW, many employers are accelerating a focus on financial wellbeing in response to the coronavirus pandemic and associated economic impacts.
“There is an appetite to redesign current benefits, and introduce new ones to improve the alignment,” it said in a report on its survey, which was conducted during February and March this year.
Richard Sweetman, senior director, financial wellbeing lead at WTW, told IPE the survey responses indicated employers did not see pension sidecars or other additional savings options as diluting their commitment to pensions.
“They still see pensions as a primary benefit and they’re committed to supporting employees plan and fund for retirement,” he said.
He suggested pension sidecars “square the circle” in that they do not divert commitment and resource away from pensions, but allow flexibility to address short-term financial worries.
Auto-enrolment provider NEST has been trialling a savings sidecar with employers such as Timpsons, Yusen Logistics and the University of Glasgow.
Under the NEST-led arrangement, which Sweetman described as a “true” sidecar arrangement, participating scheme members pay their pension contribution but some of it is diverted to a savings pot, framed as a rainy day fund.
When a pre-selected limit on that pot has been reached, the entirety of the pension contribution goes towards retirement savings.
Last month a group of Conservative Party MPs called on the government to consult on introducing a sidecar savings mechanism within auto-enrolment. They said the pilot initiative by NEST Insight had shown both employers and employees to be attracted to the idea of a payroll deduction emergency savings tool.
Sue Waites, partner at Hymans Robertson, said the consultancy would like to see sidecar savings vehicles incorporated into auto-enrolment options.
“This ability to save through the workplace without locking into a retirement commitment is a further helpful step in encouraging a long-term savings mindset for employees.”
Waites was commenting on statistics released by the Office for National Statistics yesterday, which showed that in April this year nearly 80% of employees in the UK had a workplace pension, compared with less than five out of 10 in 2012 when auto-enrolment was introduced.