The UK workplace pension scheme provider Nest has announced it is to trial a new pension savings model that could mean people are allowed to access some of the money from their pension pot before retirement.
The trial will involve the government-backed pensions being split into a ‘pension contributions’ and ‘emergency fund’ component that customers could use to access a quick source of cash at any time.
Minimum pension contributions are also rising to 5% from April 2018 and to 8% in April 2019, effectively locking more consumer earnings into pension funds. But data and analytics company GlobalData said this situation could lead workers to consider opting out if they consider these increased contributions to be unaffordable or do not want to tie their money up in this way.
The proposed new savings model has been labelled “Sidecar” because it means pension contributions will be split between a standard Nest pension pot and a separate bank account or liquid fund for emergency expenditure. The emergency fund will have a set threshold and, once it is reached, all contributions will subsequently be allocated towards pension savings.
Savers can withdraw money from the emergency fund at any time. But should they do so, contributions will again be split between the pension pot and emergency fund until the threshold has been reached.
One key question is how Nest plans to control emergency fund withdrawals to ensure that access does not cause too much damage to the main goal of pension saving.
Danielle Crips, GlobalData’s insurance analyst, said: "Nest is promoting financial resilience for its customers. It is acknowledging that long-term saving is important for retirement, but so is having a fund to cover unexpected short-term costs."
But she added that Nest should “help to educate customers so they understand how much they will need to contribute over time in order to reach a suitable level of savings for retirement, and how any emergency fund withdrawals will impact this".
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
The UK workplace pension scheme provider Nest has announced it is to trial a new pension savings model that could mean people are allowed to access some of the money from their pension pot before retirement.
The trial will involve the government-backed pensions being split into a ‘pension contributions’ and ‘emergency fund’ component that customers could use to access a quick source of cash at any time.
Minimum pension contributions are also rising to 5% from April 2018 and to 8% in April 2019, effectively locking more consumer earnings into pension funds. But data and analytics company GlobalData said this situation could lead workers to consider opting out if they consider these increased contributions to be unaffordable or do not want to tie their money up in this way.
The proposed new savings model has been labelled “Sidecar” because it means pension contributions will be split between a standard Nest pension pot and a separate bank account or liquid fund for emergency expenditure. The emergency fund will have a set threshold and, once it is reached, all contributions will subsequently be allocated towards pension savings.
Savers can withdraw money from the emergency fund at any time. But should they do so, contributions will again be split between the pension pot and emergency fund until the threshold has been reached.
One key question is how Nest plans to control emergency fund withdrawals to ensure that access does not cause too much damage to the main goal of pension saving.
Danielle Crips, GlobalData’s insurance analyst, said: "Nest is promoting financial resilience for its customers. It is acknowledging that long-term saving is important for retirement, but so is having a fund to cover unexpected short-term costs."
But she added that Nest should “help to educate customers so they understand how much they will need to contribute over time in order to reach a suitable level of savings for retirement, and how any emergency fund withdrawals will impact this".
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
