Written by Matt Bland, Chief Executive Officer at Co-operative Credit Union (November 2023)

When an emergency arises and you’ve nothing aside against a rainy day there is little option but to borrow. For millions of British workers, this lack of financial resilience through savings is a real driver of stress and poor mental health undermining performance at work and damaging wider wellbeing. 

But a new approach using “opt-out” savings – dubbed Autosave – is currently being trialled by major employers with impressive results – it might just be the solution to workplace savings that has eluded employers for decades.

A little history

Back in the early 2000s policy makers were scratching their heads about how to get people to save for their retirement. 

For decades employers had been closing final salary pension schemes to new entrants as the ageing population and inadequate contributions made their continuation unsustainable.  But as workers were encouraged to instead start saving into a private pension under defined contribution rules, the rates of pension saving fell through the floor. As a country the UK was facing a pensions crisis with many millions set to have nothing beyond their state pension set aside for retirement. 

So in 2012, to a chorus of nay sayers, the government implemented auto-enrolment in pensions.  All employers were required to opt their people into a pension which they had to consciously opt-out of if they didn’t wish to participate. 

The theory – based on the new-fangled academic discipline known as Behavioural Economics – was that people in general knew that they should save for retirement, they wanted to and they valued the peace of mind it would give them but for reasons of everyday psychology, they didn’t follow through and sign up.  People suffer from natural inertia, they have a bias for immediate needs over remote ones (like retirement for a young adult) and they are switched off by complexity – and pensions are about as complex as retail financial products get.

By making the “right” decision – in this case saving into a pension – the default (by auto-enrolling people), we could ensure that people’s natural behavioural biases worked in line with their rational self-interest.  And since people already intellectually understand that saving for retirement made sense, they would be happy that it was being automatically done for them.

The results

After a decade of auto-enrolment the change has been quite staggering: a real-terms increase of £32 billion in extra pension savings and a 50% - yes 50%! – increase in participation in workplace pensions. It wouldn’t be an exaggeration to say that auto-enrolment for workplace pensions has been one of the most effective public policy initiatives in the personal finance space ever contemplated.  A rip-roaring success.

Now it isn’t just with pension savings that these behavioural traits that we all experience get in the way of us making rational decisions and acting upon them.  The Money & Pensions Service – a government-backed body tasked with boosting the nation’s financial wellbeing – has published data which shows that 9 million Britons have no savings whatsoever and a further 5 million have less than £100 tucked away against a rainy day.  That’s a whopping 25% of the total working age population with £100 or less to fall back on to meet an unexpected expense. 

Meanwhile bodies like CIPD have published their own data which shows that this lack of resilience against financial shocks – which inevitably leads to indebtedness as employees are left with no option but to borrow when the car breaks down or the boiler packs in – results in stress and worry which undermines productivity at work.  A staggering 59% say that money worries prevent them from giving their all at work. 

The opt-out approach

Trials of a new opt-out approach to everyday cash savings – dubbed Autosave – including major employers in Greater Manchester like Co-op Group and Suez, are showing how the same lessons that sit behind the roaring success of pensions auto-enrolment can also deliver a real change on financial resilience and wellbeing through rainy day savings. 

Trials supported by research body NEST Insight – linked to the NEST pension fund – and Harvard University which include a range of savings providers – including TransaveUK Credit Union in the case of Suez, have found that automatically enrolling employees with a cash savings account on an opt-out basis for a minimum amount of £40 per month is both effective and well liked.

In the Suez-Transave trial, for example, all new starters have been pushed through the opt-out journey since November 2021 and 47% participate compared with only 7% opting in voluntarily before.  Meanwhile, 97% of employees think the scheme is a good idea and appreciate Suez offering it – that’s both those that participate and those that decide to opt-out. The Co-op Group trial which is much smaller scale and hasn’t run for as long has had similar early results. 

I would encourage anyone interested to read for themselves how effective this model is in the fantastic – and readable! – report from Nest Insight.

These results leave any other financial wellbeing intervention in the workplace that’s ever been tried looking distinctly disappointing.  Autosave works – just like pensions auto-enrolment – and if you’re serious about wanting to deliver resilience for your people, you should be seriously considering it.

We in the Greater Manchester consortium of credit unions would love to talk to you about how we can help to deliver this unrivalled financial resilience solution. Contact the Co-op credit union here and learn more about the Greater Manchester SoundPound consortium of credit unions here.