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How payroll saving schemes can increase financial resilience 

Mick McAteer, founder and co-director of not-for-profit group the Financial Inclusion Centre, explains how payroll can tackle the UK savings crisis. 

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FIC founder: "There is huge potential for growth of payroll savings schemes"
FIC founder: "There is huge potential for growth of payroll savings schemes"

The economic impact of COVID-19 has created disparities in the experiences of UK households. More fortunate households saved record sums as their spending fell, but millions of others saw their incomes hit deepening the savings crisis.

 

With this in mind, the Financial Inclusion Centre (FIC) has published a new report on how payroll savings schemes help promote financial resilience amongst lower to medium income workers.

We found payroll savings help overcome inertia and promote positive behaviour among the lower to medium income workers studied. They were:

  • More financially resilient than workmates not in the scheme;
  • Less likely to have to borrow if they lost their main source of income;
  • More satisfied with their financial circumstances;
  • Less likely to report anxiety about their finances.

The research found having £1,000 in savings could protect half a million people from problem debt. Payroll scheme members were typically saving between £50 and £70 a month - this could reach that £1,000 cushion in around three years.

 

There is huge potential for growth of payroll savings schemes. Just 850 employers are helping 200,000 workers save through payroll. Yet, there are 5,400 employers in the UK (with workforces of at least 500 people) employing a total of 15 million.

 

Payroll savings is a relatively simple concept which could be scaled up, given the right support. The measures we recommend to government include:

  • The government and Money and Pensions Service (MaPS) should prioritise payroll savings. They should aim to get at least 500,000 workers signed up within five years of a national campaign being launched.
  • The government should consider allowing payroll savings to be deducted from gross wages, rather than net wages, and allow employers to offer matched savings to employees and receive tax relief in return (limited to employees earning up to national median wages). Employers who establish schemes should be allowed to deduct the cost against corporation tax. The scale of the savings crisis means government should also consider making workplace savings part of auto-enrolment.
  • The government should ensure its departments and public bodies offer a payroll scheme for staff (following the lead of Ministry of Defence and Department of Work and Pensions). Bidders for public sector contracts above a certain level should either have, or commit to implementing, a payroll saving scheme.
  • The government, the CBI, TUC, Local Government Association, NHS, and universities should promote payroll schemes to the largest public and private sector employers in each UK region.
  • The Financial Inclusion Centre should develop a ‘financial wellbeing mark’ for employers, similar to the Living Wage campaign.
  • Funders supporting financial inclusion and resilience initiatives should fund a non-profit entity to take responsibility for promoting payroll savings schemes.

As the economy recovers form the pandemic, we must help people become financially resilient against future shocks. Payroll savings schemes are an important part of the solution.

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