Payroll-deducted saving schemes

The Money and Pensions Service (MaPS) is transforming financial wellbeing in the UK: we’re here to ensure every person feels more in control of their finances throughout their lives: from pocket money to pensions. Why? Because when they are, communities are healthier, businesses are more prosperous, the economy benefits and individuals feel better off.

Our physical, mental and financial wellbeing are closely linked. Supporting employees’ financial wellbeing as part of your overall employee wellbeing and benefits strategy has clear benefits for both employer and employee, but many employers find it difficult to navigate the host of available interventions.

MaPS can help you to explore:

• what you can do to build employee wellbeing
• what is most effective
• how to promote it.

Saving through your payroll is one of many ways to champion financial wellbeing in your workplace.

Payroll saving is making regular savings directly from an employee’s pay. An employer deducts the amount the employee wishes to save directly from wages via payroll.

Similarly to pension savings, the automated ‘set and forget’ nature of this process makes it easy for people to save by making it habitual and effortless.

Payroll savings schemes aim to help people build a savings buffer or support goals-based saving by diverting a proportion of pay into a savings vehicle each month.

• Standalone: automated payments are made directly from an employee’s pay into a savings account.
• Repay and save: automated payments are made directly from an employee’s pay into a savings account in addition to paying off a loan.
• Linked to a workplace pension (sidecar): automated payments are made directly from an employee’s wages into a savings account, in addition to automated contributions into a workplace pension. When a cap set by the employee is reached on a sidecar savings account, any extra flows into the workplace pension, accessible at retirement.

There is promising evidence emerging on the impact and appeal of payroll savings. In 2015, the Chartered Institute of Payroll Professionals showed that 55% of employees aged 16–65 would like their employer to offer a payroll saving scheme.

Two 2020 Cushon surveys show that 72% of employees surveyed want access to a workplace savings scheme and 92% of employers would implement a workplace savings scheme.

Research indicates 8 in 10 UK employees take their money worries to work, affecting their performance (1). Minimise financial stress and improve productivity by providing this automatic service.

Financial product providers that work with employers to offer payroll-deducted savings, loans and salary advance schemes range from credit unions to fintech providers.

While the Money and Pensions Service cannot choose a provider for you, we can set out the product choices available to you.

Financial education and guidance on money management are important to help your people decide if payroll-deducted savings meets their needs – it should not be presented as a substitute to contributions to a workplace pension, nor should people set up a payroll savings scheme without considering first if they are on top of any debt commitments​.

MaPS, set up by government, is an impartial provider of money and pensions guidance on money and the largest funder of debt advice in the UK.

Contact our partnership team for free, bespoke support.

Before deciding whether to offer a payroll scheme and which provider to go with, employers should always consider the financial wellbeing needs of their workforce, for example through a survey, to help build a business case.

Evidence your approach further with our insights and MaPS-funded research on payroll saving.

BT, StepChange, the University of Glasgow and Timpson are taking part in a research trial of sidecar savings, where staff can opt into automatic deductions from their pay into a liquid savings pot, alongside contributions into a workplace pension. Early learnings show that employer support for the idea and product design is high, and there is a strong sense the salary deduction mechanism could be a very effective way to initiate a savings habit.

Employers are reporting that payroll savings can reduce the need for them to offer additional types of financial support, including loans and salary advances, that can require more intensive administration.

The ongoing trial makes this savings tool available to a wide range of employees, including people on a low income, part-time and seasonal workers.

Learn more about the sidecar savings trialOpens in a new window

NHS York and Leeds City Council worked with Leeds Credit Union to run a payroll savings scheme, testing incentivising savings and using staff champions as role models. 70% of employees enrolled in the scheme saved every month and were 18% more likely to do so than non-members.

MaPS partnered with the Behavioural Insights Team (BIT) to evaluate the roll-out of payroll savings schemes in two small and medium businesses in Northern Ireland. Take-up of payroll savings at both companies was around 5–10%. This is relatively high compared with evidence of take-up rates in other schemes in the UK.

Find your closest credit unionOpens in a new window

A project with Capita and Level Financial Technology explored how best to encourage the uptake of payroll savings by applying behavioural science to improve employee engagement. The project also investigated different approaches to encourage payroll savers to increase saving levels.

In 2022, we launched a new workplace trial to test whether an opt-out joining mechanism could enable many more people who want to save through payroll for the shorter-term to get started.

Learn more about opt-out joining methodsOpens 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.

Sources

(1) 94% of UK employees admit to worrying about money and, of these, 77% say that money worries impact them at work. Close Brothers, The Financial Wellbeing Index (2019).