New research funded by the Money and Pensions Service shows that seven in 10 employees enrolled in a workplace payroll scheme save every month and are 18% more likely to do so than those not in such schemes.
The study showed promising signs that salary saving schemes with credit unions could provide 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.
Key findings from the research were:
- 70% of payroll scheme members saved every month compared to 52% of employees who are not members of a credit union.
- 89% of new joiners maintained or increased the amount they saved every month.
- Low to 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 to 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 and after the main study had ended looked at the impact of the pandemic on attitudes towards saving.
One respondent told 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.”
Martin Groombridge, Credit Union Chief Executive, added: “We know from our own experience at the Credit Union just how important salary savings schemes are in helping people to save. Dozens of employers have signed up to our scheme and many of their employees are already benefiting.
“The good thing for employees is that you don’t have to think about saving, as the money goes out directly from your pay packet, and before you know it you’ve built up a decent pot of savings.”
Find out more here about our Salary Saving Scheme and to check which employers have signed up.