New research demonstrates effectiveness of workplace savings schemes

Wednesday 17 January 2024

New research funded by the Money and Pensions Service (MaPS) shows that 7 in 10 employees enrolled in a workplace payroll scheme save every month and are 18% more likely to do so than non-members of such schemes.

The results show promising signs that payroll saving schemes with credit unions could be a step-change in improving the financial wellbeing of people on lower incomes by helping them build a savings buffer. While many people may not be able to build savings right now, for some, who are in a more secure financial position, the current pandemic has acted as a catalyst to review their finances and save.

The study was led by the Financial Inclusion Centre and looked at how workers could benefit from savings being transferred automatically from their pay packet to a savings account. This approach allows working people to build up savings without needing to set money aside themselves. The research was conducted with 2,997 employees at Leeds City Council and York Teaching Hospital NHS Foundation Trust, of which 639 held savings accounts with Leeds Credit Union.

Key findings from the research are:

• 70% of payroll scheme members saved every month compared to 52% of employees who are not members of the credit union at all.
• 89% of new joiners maintained or increased the amount they saved every month.
• Low-medium income employees not in the payroll savings scheme appear to be more financially vulnerable than colleagues in the payroll savings scheme. 41% of low-medium income workers in the payroll savings scheme said that, if they lost their main source of income, they could last for less than a month without having to borrow. This figure dropped to 31% for those people not in the credit union.
• Offering a prize draw was the most successful and cost-effective way of encouraging people to start saving via the payroll scheme.

Follow up interviews conducted after the first national lockdown in 2020 after the main study had ended looked at the impact of the pandemic on attitudes towards saving.

One respondent told the researchers: “I wanted to save but I always thought that I couldn’t fund it… but with it coming straight out of my pay it changed me completely as I’ve realised that I actually can afford it”. The same respondent said “[Covid-19] made me think that I would rather have a rainy-day fund…that was why I looked into upping what comes out of my salary. And thought that it would help to build things back up a bit quicker.”

Michael Royce, Senior Policy and Propositions Manager at the Money and Pensions Service said: “This study shows the important role employers can play in improving the financial wellbeing of their staff. We’re working with a range of employers to test the impact of different saving schemes and hope to see more employers take these up, to help achieve our ambition of seeing two million more people saving regularly as part of our 10-year UK Strategy for Financial Wellbeing.

“While we’ve seen that some households have managed to increase their disposable incomes during the pandemic, many others may not be in a position right now to put more money aside.

“Anyone facing money worries because of Covid-19 can use our Money Navigator Tool as their first port of call. If you’re struggling with debt, you can access free debt advice through the Money Advice Service website.”

ABCUL CEO, Robert Kelly said: “I’m delighted the report highlights 70% of payroll scheme members saved every month after joining a credit union, but despite this there is a large proportion of employees not aware of the support to make them financial resilient. This research is a great example and template for credit unions to market themselves to employers and reach an audience that still has little knowledge of the sector despite our track record”

“Thanks to the Financial Inclusion Centre and the Money & Pensions Service, the report highlights the valuable role credit unions play improving financial wellbeing in the workplace.”