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Are auto-enrolment saving schemes a good idea?

Auto-enrolment saving schemes could help build financial resilience, says financial wellness coach

The government should introduce auto-enrolment (AE) saving schemes to help more people save, the Resolution Foundation has urged.

The thinktank revealed this week that 11 million Brits have less than £1,000 in savings, in its report Precautionary tales: Tackling the problem of low saving among UK households.

AE saving schemes would automatically pay a small amount of an employee's salary into a savings pot each month, to help workers save outside of their pension scheme.

The report pointed to research by pensions provider Nest Insight this month (5 February) that tested an opt-out approach to workplace payroll saving.

The test boosted participation by helping 47% of employees save, compared with 1% in similar opt-in schemes.

Read more: Pension auto-enrolment at 18 supported by young adults

Speaking to HR magazine Jon Rudoe, co-founder of employee money-saving tool Nous, said: “As humans, we are much more likely to stick to something when it is the default and doesn’t require us to act.

“When it comes to employee financial wellbeing, look at support options which harnesses the ‘default mindset’ for employees’ benefit. Auto-enrolment pension and savings schemes are a great example.”

Financial wellness coach, Arlyne Chinyanganya, agreed that AE saving schemes could help employees build up emergency funds, plan for retirement and increase their financial resilience.

She noted: “Having savings in place can mitigate the impact of unforeseen financial challenges, such as unemployment or unexpected expenses.”

This could help promote a culture where employees save a percentage of their income before spending, she continued.

But Lee Melling, a support officer at the charity caba, who focuses on financial wellbeing, told HR magazine that considering the current economic landscape, employees would opt out of AE saving schemes at work.

He said: “While AE schemes can help employees save more consistently, at a time when finances can feel stretched, some people will likely choose to opt out of such schemes.

“With stagnating wages and the current cost of living crisis, more and more employees will be experiencing financial anxiety regardless of their income and overall money situation.”

Read more: How to motivate mid-life employees to save for retirement

Melling advised employers to help employees find a tailored approach to taking control of their finances, rather than introducing a universal scheme.

He added: “There are some small ways to help employees make their money go further – from budgeting tools, such as pension or savings calculators, to providing access to support from a charity like caba, employers can help their employees to feel good about their finances and find a sustainable approach to saving.”

Chinyanganya added that while saving schemes could enhance job satisfaction and retention, employers should consider the financial strain to both their business and their low-income workers, as well as potential resistance from employees.

She said: “Any initiatives to expand auto-enrolment should be accompanied by comprehensive support measures and clear communication, to ensure successful implementation and uptake.”