Editorial: It seems that the key to enabling people to save for a pension could lie in boosting their financial resilience.
That is what master trust Nest’s sidecar project is trying to do. The solution involves splitting a saver’s pay between a pension pot and a liquid savings vehicle, on which individuals can fall back in times of financial need.
This is an attractive proposition for those who have been reluctant to save for retirement because putting away money for the future reduces their ability to save for emergencies.
Key-cutting and shoe repair retailer Timpson has been named the first participant in the two-year trial, and pensions minister Guy Opperman has called on financial services companies to follow its example.
The sidecar account has often been referred to as rainy day fund. However, Nest said it will be labelled an emergency pot.
The master trust’s decision is grounded in behavioural finance research, with Nest hoping savers will feel less inclined to regularly drain their pension pots if the accounts are categorised as emergency funds.
It will be interesting to see whether this works. I have my own (admittedly very small) pot of savings for mini crises – one of which has included taking my parents’ dog to the vet when they were away, to then be handed a surprisingly hefty bill for what turned out to be “a torn nail”.
I do occasionally dip into it for non-urgent matters when I need a bit of a top-up. Maybe if the account were obviously labelled as an emergency fund, I would think twice about taking cash out.
The initiative has also been recommended as a solution for self-employed workers by the Association of Independent Professionals and the Self-Employed and a government consultation should take this forward, as long as the current chaos caused by ministers including work and pensions secretary Esther McVey does not delay things.
Department for Work and Pensions bosses have quit before, but instability is certainly not something the industry wants to get used to.
Sophia Imeson is associate editor at Pensions Expert. You can follow her on Twitter @SophiaImeson and the team @pensions_expert.
