Payroll-deducted saving schemes

Payroll saving allows your employees to automatically save money from their pay. As an employer, you deduct the amount the employee chooses to save directly from their wages.

Like pension contributions, this automated process makes saving easy and routine, without extra effort.

Payroll saving helps people build a financial cushion or save for specific goals by setting aside part of their pay each month.

• Opt-in: employee consents to opt into a cash savings scheme offered by their employer. Automated payments are made directly each month from their salary into a savings account.
• Opt-out/autosave: employer automatically enrolls employee into a cash savings scheme. Payments are made from salary each month, unless the employee chooses to opt out.
• Cash savings: various workplace savings products exist, but this guidance for both opt-in and opt-out/autosave schemes refers specifically to an agreed proportion of net salary being deducted from payroll into a regulated cash savings product allowing instant and full access to savings without penalty.

• Credit unions: these member-based institutions usually offer loans, and sometimes insurance, alongside savings as part of their workplace package to employers and employees.
• Financial wellbeing fintech providers: there is usually an existing relationship between a regulated savings provider, such as a bank or building society, and the fintech. These providers through their apps or platforms generally offer savings alongside other benefits, such as earned-wage access (a cashflow tool allowing employees to access a proportion of their already earned salary before pay day), financial coaching, benefits calculators, loan consolidation and credit.

Surveys show strong interest in payroll-deducted savings schemes from both employees and employers. In one recent trial of an opt-out setup, 93% of workers said they liked the scheme, whether or not they chose to save (1).

Financial stress harms work performance, and over a quarter of employees say money worries affect their ability to do their job (2). Offering automatic savings can help reduce money worries and improve focus.

Financial service providers, like credit unions and fintechs, can help employers set up payroll savings, loans, and earned wage access schemes.

The Money and Pensions Service (MaPS) can provide guidance on options, although employers must consider employees' overall financial situation, including debt, before offering these schemes.

Therefore, before choosing a payroll savings scheme, employers should thoroughly assess their workforce’s financial needs and use available research to support their decision.

Using behavioural science helps increase engagement and savings levels in payroll schemes.

Learn more about using behavioural science to help employees saveOpens in a new window.

Recent trials by Co-op and Bupa have shown that an opt-out approach boosted saving participation, with 70% of colleagues actively saving. As a result, Co-op has further expanded its savings scheme (3). 

This Nest Insight report, funded by MaPS and other partners, brings together evidence from trials with major employers over several years. It demonstrates that an opt-out approach, similar to pensions auto-enrollment, can be a powerful tool to make it easier for people to save consistently and build financial security.

Read the full reportOpens in a new window

Contact our regional partnerships team for free support and practical ways to help you build financial wellbeing across your organisation.

Based near you, our partnerships teams can help bring your organisation an understanding of some of the local financial wellbeing challenges.

If your organisation has multiple sites, please contact the regional manager closest to your head office.

Also see

• UK Strategy for Financial WellbeingOpens in a new window
• Financial wellbeing in your locationOpens in a new window
• Talk Money WeekOpens in a new window
• MoneyHelperOpens in a new window
• Financial wellbeing in the workplaceOpens in a new window

Sources

(1) https://www.nestinsight.org.uk/powerful-and-popular-opt-out-payroll-savings

(2) Commonwealth and the DCIIA (Defined Contribution Institutional Investment Association) Retirement Research Center, ‘Emergency savings features that work for employees earning low to moderate incomes’ (August 2022): dciia.org/resource/resmgr/resource_library/Emergency_Savings_Features_T.pdfOpens in a new window

(3) Co-op Expands Opt-Out Savings Scheme to Strengthen Financial Wellbeing for Colleagues - Co-op Expands Opt-Out Savings Scheme to Strengthen Financial Wellbeing for Colleagues - Co-op