FCA clarifies rules to jumpstart sidecar savings
Image: FCA
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The Financial Conduct Authority has published a statement on workplace saving schemes to dispel confusion about these ‘sidecar’ accounts, including in the context of the national minimum wage and rules on financial promotions.
Workplace savings schemes are viewed by many in the finance sector and government as a way to increase the financial resilience of low earners. Large parts of the population have very low levels of savings, the FCA pointed out, meaning many would be unable to absorb financial shocks such as an unexpected repair. Its 2024 Financial Lives Survey found one in 10 has no cash savings, while a further one in five people has less than £1,000.
However, take-up of workplace savings by employers has been “limited” according to the FCA, with government data suggesting just 7% of UK employers offer them.
The FCA has now said it has worked with partners “to provide clarity on the rules around schemes”, including around how employers can avoid breaching national minimum wage requirements – for example by ensuring accounts are in employees’ names and that they do not face charges or delays when withdrawing funds.
The risk of inadvertently making a financial promotion by communicating workplace savings has also been perceived as a barrier, according to the FCA, which specified that only a person authorised under the Financial Services and Markets Act can currently communicate such a scheme, such as the financial services company running the savings accounts.
However, the FCA admits there are still hurdles to be overcome, as it said enabling the uptake of opt-out – or automatic enrolment – models will probably “require action from various authorities, including possible changes to legislation”.
Workplace savings schemes are viewed by many in the finance sector and government as a way to increase the financial resilience of low earners. Large parts of the population have very low levels of savings, the FCA pointed out, meaning many would be unable to absorb financial shocks such as an unexpected repair. Its 2024 Financial Lives Survey found one in 10 has no cash savings, while a further one in five people has less than £1,000.
However, take-up of workplace savings by employers has been “limited” according to the FCA, with government data suggesting just 7% of UK employers offer them.
The FCA has now said it has worked with partners “to provide clarity on the rules around schemes”, including around how employers can avoid breaching national minimum wage requirements – for example by ensuring accounts are in employees’ names and that they do not face charges or delays when withdrawing funds.
The risk of inadvertently making a financial promotion by communicating workplace savings has also been perceived as a barrier, according to the FCA, which specified that only a person authorised under the Financial Services and Markets Act can currently communicate such a scheme, such as the financial services company running the savings accounts.
However, the FCA admits there are still hurdles to be overcome, as it said enabling the uptake of opt-out – or automatic enrolment – models will probably “require action from various authorities, including possible changes to legislation”.
“Financial inclusion is a shared effort, which is why we’re teaming up with partners and playing our part to help businesses understand how to apply the rules for the benefit of consumers. This clarity should give employers greater confidence to offer savings schemes that can help people navigate their financial lives,” said Emad Aladhal, the FCA’s director of retail banking.
Emma Reynolds, economic secretary to the Treasury, said: "Payroll savings schemes are a great way for everyday workers to put a little aside for a rainy day – this statement helps businesses support their employees to make good financial decisions.”
Reynolds said the Financial Inclusion Strategy will be out later this year and will build on this work.
Oliver Morley, chief executive at the Money and Pensions Service said: “As shown by research we recently carried out with Nest Insight on opt-in and opt-out workplace savings, even a small amount set aside can provide financial resilience and peace of mind for employees. We will continue to support the FCA in engaging with government and industry to raise the profile of these schemes with employers.”
Oliver Morley, chief executive at the Money and Pensions Service said: “As shown by research we recently carried out with Nest Insight on opt-in and opt-out workplace savings, even a small amount set aside can provide financial resilience and peace of mind for employees. We will continue to support the FCA in engaging with government and industry to raise the profile of these schemes with employers.”
Master trust Nest trialled auto-enrolling workers into workplace savings with waste management firm Suez in 2021, after a previous two-year trial with five employers found take-up was low when the savings scheme was designed as a voluntary opt-in. Nest’s ‘Jars’ programme builds up short-term savings to a level specified by the employee, with any amount beyond that getting ‘tipped’ into the saver’s Nest pension pot. In 2023, Nest said early evidence from its newer trials suggests promise for overcoming barriers to voluntary opt-in, such as inertia and low financial confidence, through an opt-out approach.
Efforts to improve the financial resilience of employees are usually well received in the pensions industry. Richard Sweetman, a senior consultant at consultancy Broadstone, said workplace savings schemes can play a vital role, complementing auto-enrolled pension programmes, to help employees improve their financial wellbeing and even resulting in higher productivity.
“The FCA’s clarity around these schemes and ongoing collaboration with industry stakeholders to promote workplace savings is an important step. We hope to see more employers explore workplace savings plans to encourage regular saving from their employees,” he said.