Rebuilding Financial Wellbeing

New research funded by the Money and Pensions Service (MaPS) shows that 7 in 10 employees enrolled in a workplace payroll scheme save every month and are 18% more likely to do so than non-members of such schemes.

The results show promising signs that payroll saving schemes with credit unions could be 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. The research was conducted with 2,997 employees at Leeds City Council and York Teaching Hospital NHS Foundation Trust, of which 639 held savings accounts with Leeds Credit Union.

The research shows that members of the payroll savings scheme can directly benefit:

  • 70% of payroll scheme members saved every month compared to 52% of employees who are not members of the credit union at all.
  • 69% of low-medium income workers in the payroll savings scheme said they saved every month compared to 44% of colleagues in the same earnings band not in the credit union.
  • 59% of payroll scheme members had never or rarely saved before joining the scheme however, 89% of new joiners maintained or increased the amount they saved every month.
  • Low-medium income employees not in the payroll savings scheme appear to more financially vulnerable than colleagues in the payroll savings scheme. 31% of low-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. But, 41% of their colleagues not in the credit union said the same.
  • Low-medium income workers in the payroll saving scheme were less likely to strongly agree their financial situation made them anxious – 21% compared to 26% of colleagues 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.

These results have been achieved despite credit union members tending to have lower household incomes and lower financial resilience than the rest of the workforce. 54% of credit union members surveyed had a household income below £35,000, compared to 42% of workers who are not credit union members. The research suggests payroll savings provides real benefits for those on low-medium incomes.

Follow up interviews conducted after the first national lockdown in 2020 after the main study had ended looked at the impact of the pandemic on attitudes towards saving.

One respondent told the 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.”

Another respondent said: “I do want to be at least one month in savings because [Covid-19] made me realise that there is always a chance that something might go wrong, especially in employment.

It’s just made me a little bit more keen to get that one month’s worth of bills saved up so that we’ve got a bit of security. “[Payroll saving] is a really good service and I’m just really glad that the council do offer it as it makes saving a hell of a lot easier, especially when you don’t even realise that it’s coming away from your pay pocket. It’s a lot better.”

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.

“While we’ve seen that some households have managed to increase their disposable incomes during the pandemic, many others may not be in a position right now to put more money aside.

“Anyone facing money worries because of Covid-19 can use our Money Navigator Tool as their first port of call. If you’re struggling with debt, you can access free debt advice through the Money Advice Service website.”

Marlene Shiels OBE, CEO Capital Credit Union and Nation of Savers Challenge Group Chair said: “Building financial resilience has never been more important in the UK. This study proves that access to payroll savings schemes is a major component in helping employees build financial resilience, to take control of their financial wellbeing and to protect themselves in the event of future emergencies. Every employer, no matter what their size should seriously consider establishing a salary saving scheme with a credit union. Employers that look after their employees are also looking after their businesses, with better productivity and fewer sick days because of debt related stress. A win for employees, a win for employers.

“The Nation of Savers Challenge Group* supports payroll savings schemes as a major tool in taking people from little or no financial resilience to financial health and wellbeing.”

*The Nation of Savers Challenge Group is one of 11 challenge groups that were set up in February 2020, which include sector leaders from cross industry groups, to make recommendations to help deliver five national goals set out in the Government backed UK Strategy for financial wellbeing and MaPS own 10-year strategic plan.