Younger workers favour ‘salary sidecars’ for rainy day fund

Young employees are keen for employers to automatically enrol them in savings schemes that use “nudge economics” to encourage thrift, according to research.
Ninety-five per cent of Generation Z respondents and 85 per cent of millennials favour “sidecar” arrangements in which part of their salary is deducted and put straight into a savings account in their name.
The research by BlackRock found strong support for the innovation with 76 per cent of 1,000 respondents interested in the idea. Younger employees, especially, believed it would help them budget better.
Policymakers say the inertia that has led to most low and moderate earners saving in a pension scheme without compulsion could be harnessed to boost rainy-day savings and prevent more people from falling into difficulty with debt.
The early adopters of sidecars, which include Bupa, Co-operative Group and Suez, report strong take-up when employees are automatically signed up, although they still have a choice to opt out.
In September Asda began a scheme by which its 150,000 UK employees could opt for sidecar deductions in an arrangement run by the workplace benefits provider Wagestream.
Gavin Lewis, the head of institutional client business for BlackRock in the UK, said, “With a large proportion of both Gen Z and millennials having fewer than three months’ savings on which to fall back, building an emergency savings element into auto-enrolment is a win-win.”
The government is cautiously supportive. Before it came to power Labour promised a review of regulatory barriers “enabling a more widespread rollout of innovative savings programmes”.
Emma Reynolds, the pensions minister, has promised that the pensions review will examine the possibility of hybrid arrangements through which employees could initially save into an accessible account. The money could then tip into a less accessible pension pot once a minimum level of savings was reached.
Jo Phillips, director of research at Nest, the online pension scheme set up to make auto-enrolment as easy as possible, said: “My sense is that more employers and providers are talking about the potential to offer sidecar savings, to support workers to build financial security for both today and tomorrow.”
Helping people with financial resilience and protecting them from the perils of high-cost credit is seen as a big policymaking prize.
More than 11 million people live hand to mouth with less than £100 in a rainy-day pot, according to the government-sponsored Money & Pensions Service. Small shocks such as a broken heating boiler can tip them into high-cost credit, which can be difficult to escape. That in turn can lead to misery, anxiety, family break-ups and depression.