Our attitude towards saving has changed over the past year. The pandemic has helped many of us realise its importance. And workplace pension and savings provider, Cushon, is now encouraging the government to capitalise on this by exploring auto-enrolment workplace savings schemes.
In fact, its research found that 62% of people would stay in a workplace savings scheme if auto-enrolled, rising to 69% if their employer were to contribute as well.
So let’s take a look at what a workplace savings scheme is – and what are the benefits of having one.
What are workplace savings schemes?
We have all heard of workplace pension schemes. But we may not be that familiar with workplace savings schemes.
A workplace savings scheme would work much like your workplace pension. Your employer would deduct the amount you wish to save directly from your pay. This would then be put into the workplace savings scheme.
It would help you to build a healthy savings habit as the amount comes directly from your wages, much like national insurance contributions.
And it seems a lot of us agree with this sentiment. Cushon’s research found that 52% of employees would be more likely to save if their employer set it up for them. This then jumps to six in ten people who say they would stay in a workplace savings scheme if their employer automatically enrolled them in it.
Is auto-enrolment the future?
There is a case to be made that auto-enrolment into workplace savings schemes could be a good thing. Much like the current system with workplace pensions, it would mean that every employee would automatically be enrolled in a savings scheme. It would then be up to them to opt out.
Cushon found that only around one in ten would definitely come out of a workplace savings scheme – a very similar opt-out rate to pensions.
Inertia plays a big part. It seems that for most of us, if our employers were to auto-enrol us, the majority would stay put – even without the benefit of employer contributions.
But as CEO and founder of Cushon Ben Pollard points out, there would need to be safeguards in place. Particularly around educating people on savings versus debt repayment.
Automatic savings are a good idea. But only as long as you don’t find yourself struggling to repay your debts.
What are the benefits of these savings schemes?
The main benefit for employees is that the automated nature of a workplace savings scheme makes it habitual and effortless to save.
There’s no ‘let’s see how much I have left at the end of the month’ type of attitude towards savings. Instead, it comes straight out at source and is as regular as your monthly paycheck.
In fact, some employers have found schemes like this improves productivity. Money worries and financial stress can affect all areas of our lives, including our work. Taking an element of that stress away can lead to improved financial wellbeing and therefore increase our productivity.
What’s the downsides?
As we have already mentioned, savings is just one element of someone’s financial wellbeing. Auto-enrolment savings schemes may be great for setting up a savings habit. But not if this means you don’t have enough money to repay your debts.
As a general rule of thumb, it is best to pay off your debts before focusing on building your savings. This is because debt – particularly credit card debt – is expensive. And if you don’t make your minimum monthly repayments, or leave an outstanding balance, you could quickly find yourself in a debt spiral.
That’s not to say don’t save at all. We all need an emergency fund for those unexpected costs. But the tie of regular savings contributions coming out of wages may be too much for some people.
There is also the fact that if your employer has set up this workplace savings scheme, it means that you are not able to shop around for the best savings product for you.
If you were the one setting up your own savings account, you would be thinking about if you needed an easy access account, ISA or fixed rate bond? You would also be able to compare deals in order to get the best rate.
With a workplace savings scheme, it is likely your choices would be more limited.