FIS0063

Written evidence submitted by Nest Insight

Introduction

Nest Insight is a public-benefit research and innovation centre with the mission to find ways to support people to be financially secure both today and into retirement. We were established by Nest in 2016 and work with additional funding from trusts, foundations and other funding organisations to conduct rigorous, cutting-edge research and to work collaboratively with business, policymakers and academic partners. We conduct robust real-world trials to address the financial challenges facing low to moderate income households. More information is available at: www.nestinsight.org.uk

This response represents the views of Nest Insight, based on evidence from our public benefit programme that aims to address the financial resilience, security and wellbeing of low- and moderate-income households. It does not reflect the views of our partners.

Since 2018, we have been conducting a programme of research trialling workplace emergency savings mechanisms and evaluating their effectiveness. This work has been delivered in partnership with academics from Harvard University (David Laibson, Sarah Holmes-Berk, Jay Garg and John Beshears), Yale University (James Choi) and Brigham Young University (Brigitte Madrian); in collaboration with savings providers Salary Finance, Yorkshire Building Society, Stream and TransaveUK; and has taken place with 8 employers collectively covering 150,000 employees.

The evidence conclusively and robustly points to workplace savings schemes dramatically boosting saving behaviours and supporting greater household financial resilience – but only if run on an opt-out basis, in which it is made easier for employees to start saving if they want to.

We have worked with three firms – SUEZ Recycling and Recovery UK, Bupa Care Services, and Co-op – on opt-out trials since 2021, covering both new employees and existing employees using a workplace benefits app. More than 5,500 employees experienced opt-out payroll saving during the two-year trial periods. We have published 14 research reports and discussion papers from this programme of work, which can be found at: www.nestinsight.org.uk/research-library-emergency-savings/

Our real-world trials with employers and payroll saving providers have demonstrated the efficacy and potential of opt-out payroll savings and were cited as case studies within the Financial Inclusion Strategy. We are also working alongside the Money and Pensions Service (MaPS) and The Investing and Saving Alliance (TISA) to bring together a National Coalition of Employers to further encourage the take-up of payroll savings, as announced in the strategy. And we worked in support of the Financial Conduct Authority (FCA)’s recent statement on workplace savings schemes cited in the strategy, collaborating with the FCA, HM Treasury, HMRC, the Department for Business and Trade, the Information Commissioner’s Office and the Prudential Regulation Authority.[1]

We are also partnering with the Department of Work and Pensions on a multi-year programme of research to understand the low levels of saving seen among self-employed people and test a range of approaches to encourage and enable retirement saving in ways that fit their context and meets their needs, again cited in the Financial Inclusion Strategy.

We would be happy to share further information or discuss any of the findings included in this submission with the Committee.

Response summary

This response primarily focuses upon the ‘Support for Savings’ section of the strategy, with a particular emphasis on encouraging payroll savings.

Nest Insight welcomes the Financial Inclusion Strategy and is pleased Government is foregrounding the importance of financial inclusion and its close links to economic growth.

We are especially pleased to see the strategy prioritise savings. Too many people lack even a small financial buffer, leaving them vulnerable to shocks and debt which can impact their mental health and their productivity. This problem is not driven by a lack of understanding or motivation: many people want to save but face behavioural and practical barriers in getting started, resulting in a large gap between intentions and actions. We believe that financial inclusion is not just about access, but about supporting appropriate levels of actual participation. Payroll savings schemes can overcome some of the behavioural and structural barriers people face by making saving easier through payroll – but coverage is currently low, with only 7% of employers offering them, meaning a small minority of employees nationwide have access. Additionally, participation in the schemes that are on offer, in which employees generally have to sign-up to save, is also low – which means they are failing to reach their potential for boosting savings and, by extension, financial inclusivity.

The strategy, coupled with the FCA’s regulatory statement, represent important steps in scaling effective payroll savings models, giving employers clarity and confidence to offer workplace savings schemes to their employees. However, the evidence shows that an opt-out approach to payroll saving dramatically boosts participation and is vastly more effective at reaching groups that have previously been excluded from saving than the more common approach to payroll saving in which employees must actively sign up to save. The establishment of a National Coalition of Employers for workplace savings, which we are involved in driving, presents an excellent opportunity to build on these steps and we will work diligently to facilitate the wider adoption of payroll saving, potentially on an opt-out basis.

There do remain legal and administrative barriers which are limiting the wider rollout of opt-out payroll saving by more employers, which we summarise in our response.

The support set out in the strategy and the work of the Coalition will help to increase take-up of effective opt-out models, but it is also possible that clearer regulatory statements or targeted legislative change may be required in the future to decisively remove these barriers – particularly if we are to support the millions of people with low financial resilience and insufficient emergency savings at scale, and make a real difference to overall levels of inclusion and wellbeing.

Stronger policy interventions will likely be particularly important for reaching the half of UK employees who work for smaller employers, which often lack the capacity to prioritise workplace saving initiatives. For these (and all) employers, there is a clear opportunity to build on the infrastructure already established through automatic enrolment into workplace pensions. If payroll and pension providers were able to incorporate short-term savings alongside pensions, smaller employers could access ‘off-the-shelf’ solutions through existing provider relationships, rather than needing to set up new arrangements. While we recognise that pensions were out of the scope of the Financial Inclusion Strategy, the Pensions Commission’s current focus on adequacy, fairness and sustainability creates a timely opportunity to lay the groundwork for this integration of shorter- and longer-term savings inclusion policy. Doing so would strengthen alignment with the strategy’s objectives and demonstrate a cross-government, mission-led approach to delivering financial inclusion at scale.

We are supportive of the expansion of Help to Save, and our response provides some observations on the potential benefits of and paths toward closer integration between Help to Save and payroll savings.

Finally, we also set out evidence showing that financial inclusion and more specifically payroll saving is supportive of Government’s goals to boost economic growth.

Full response

Scope and foundations 

The Financial Inclusion Strategy identifies a number of the key challenges to financial inclusion in the UK and rightly identifies the need to take a joined-up approach, bringing together a host of actors across the system. Nest Insight agrees the focus areas within the strategy present substantial barriers to financial inclusion and are the right foundations for action.

We have carried out a wealth of research over the last decade into financial insecurity, adding a level of detail to the evidence base which makes clear that a lack of savings buffer prevents households from building the stability required to give peace of mind and to protect them from the pitfalls of financial shocks and emergencies. These pitfalls drive millions of people towards high-cost loans, debt, missing bill payments and cutting back on essentials. Lacking financial resilience and having to make these choices in and of itself drives financial exclusion as households are forced towards the margins.

Nest Insight conducted detailed longitudinal research into the financial lives of UK households over 2023 and 2024, scrutinising almost every single financial transaction taken by 50 households and gathering first-of-its-kind evidence.[2] We uncovered that while our financial system is built around the idea of regularity of income, as many as 25 million people in the UK are affected by income volatility – and many face a combination of both poverty and volatility premiums.[3] This volatility presents  significant challenges for households over and above income levels. As our evidence sets out, volatility is not limited to people who are self-employed – but a much larger base including people working on zero-hours contracts, shift workers, people with non-monthly pay cycles, undergoing job or benefit changes, as well as people working multiple jobs. The households whose finances we assessed through Real Accounts experienced average monthly income variations of £504.93 – just short of what ONS estimated it cost to keep the average household running for a week, at the time the research was undertaken.[4]

This carries psychological and emotional costs, placing a significant cognitive and emotional burden on individuals and households. This pressure can lead to negative mental health impacts, including anxiety and depression.

Households with volatile incomes are often unable to save effectively or to make investments in their future, which can limit the impact of positive interventions which improve financial standing, such as qualifying for credit, building savings or participating in schemes like Help to Save. The financial behaviours and decisions we observed included: regularly moving very small amounts between accounts, with some households making as many as 150 transfers in a month; accepting a lower income in exchange for less income volatility; avoiding setting up direct debits and manually paying every bill; borrowing within households; and people scaling their use of different credit sources up and down in line with their incomes. These are often intricate and advanced household budgeting systems across multiple pots of money to keep people afloat, displaying high financial capability and ingenuity, but they are tailored tools and strategies, focused upon today – and so broadly sit outside the financial system and away from the benefits of more formal financial services, which are often not designed around financially excluded people’s needs and contexts.[5]

Acting on digital inclusion and widening access to banking services, appropriate insurance products and affordable credit is crucial to supporting greater financial inclusion and excluded households, as well as further funding for debt advice, financial education and capability and action on poor practice in insolvency. Nest Insight strongly supports Government and partners, including Fair4All Finance and MaPS, in this work. It is critical that this lived experience of household money management is considered in policy and commercial solution design, including recognising and building from the existing contexts and money management capabilities of those who are currently financially excluded.

Our evidence repeatedly finds that one of the most impactful financial inclusion interventions is supporting low-to-moderate and volatile-income households to build a savings buffer. And amongst approaches to building emergency savings, opt-out payroll saving is the most powerful: it reflects the importance of behavioural interventions which can cut through the barriers described above that households face in managing their finances and getting started with saving. In both of our opt-out trials, the number of people saving compared to an opt-in approach has increased by around 50 percentage points. That means that at SUEZ UK, participation increased from only 1 in 100 workers saving to 48 in 100 saving – nearly half of all eligible employees. At Co-op and Bupa, participation is even higher with 68 in 100 people saving, up from only 15 in 100 when employees had to sign up to save.[6] This kind of step change in savings participation is unusual – other interventions designed to educate and raise awareness have failed to get this kind of traction.

Saving through payroll supports people to save persistently over time. And workers actively use their payroll savings accounts, with more than 7 in 10 making at least one withdrawal from their savings account in the first 1-2 years. This is important as it shows savings are actively used, including to cope with financial shocks, and that people are actively engaged with their accounts.

Opt-out payroll saving approaches are also inclusive, reaching the people who most need support to get started with saving. More people who previously did not have savings and who lacked savings confidence start to save under these schemes than those where they must actively sign up. Finally, opt-out payroll saving is popular with both employees and employers: 9 in 10 employees are supportive, whether they choose to save or not. This evidence is outlined in greater detail in the rest of this response to the Committee’s call for evidence.[7]

These findings have wider relevance to other areas of the Financial Inclusion Strategy. Behavioural support could be an effective and cost-efficient route to supporting financial greater inclusion and appropriate participation beyond payroll saving. For example, we are supportive of the commitment to trial an opt-out approach to contents insurance provision for social housing tenants.

Targets, timeframes, and resources  

Is the proposed two-year timeframe for reviewing progress appropriate? Does this period allow sufficient time for the plans to develop without risking unnecessary delay?  

Nest Insight agrees with the proposed two-year timeframe for review. As a named organisation within the strategy, we welcome the scrutiny of Government and of the Treasury Committee.

Plans in support of the National Coalition of Employers for Workplace Savings are already underway. This includes developing tangible targets and member commitments in support of the goal to increase the number of UK working age adults who have savings, particularly those with savings between £1,000 and £2,000. Nest Insight looks forward to working closely with MaPS and TISA as well as employers, payroll savings providers, industry bodies, regulators and government to scale adoption and to increase the numbers and proportions of employees and employers taking part in payroll saving schemes.

We believe momentum will be crucial to the success of the Coalition and therefore welcome a two-year review window in which to make progress. In order to make real headway on payroll saving coverage nationally, it will be crucial to onboard both large employers and to clear the path for small employers, who often lack the capacity and budget for digital payroll innovation, with more ‘off-the-shelf' solutions and policy support from Government, HMRC and regulators. We are excited for the Coalition to build upon the strong collaboration behind the FCA statement on savings and the strategy. While the core role of the Coalition should be driving scale, it will also be important to give it the space to give expert feedback to Government if, in practice, barriers to scale for opt-out models continue to inhibit adoption.

From a standing start, driving sufficient employer take-up all the way through to employee participation, at sufficient scale to impact the savings outcome-metric within two years, is likely to be challenging. It takes time for an employer to implement a new scheme and more time for employees to build up savings. In our trials, we see average savings balances reach low hundreds of pounds after a year. We should therefore avoid a scenario where progress towards the savings outcome that falls short of fully delivering it within two years is a failure – it will be important to develop indicator measures to show progress either is or is not being made towards this ambitious outcome-based measure of eventual success.

Nest Insight supports HM Treasury’s plans to implement clear outcome-based metrics as set out in the next steps section of the strategy. There are well-evidenced links between financial inclusion and Government’s goals for economic growth and living standards. It is therefore sensible to chart the progress of this strategy closely.

Policy design, effectiveness and priorities

The Financial Inclusion Strategy is an important first step towards scaling payroll saving

The Financial Inclusion Strategy is right to prioritise support for savings. Research consistently shows that too many people have little or no savings, leaving them exposed to financial shocks. For example, in 2024, 38% of UK adults said they could not use existing savings to cover a £250 emergency expense.[8] This lack of short-term financial resilience has serious consequences, increasing the risk of problem debt and poor mental health.[9]

The challenge is not a lack of understanding or motivation. Almost everyone recognises the value of having savings to protect against emergencies and wants to save, yet many still fail to get started.[10] Behavioural and practical barriers play a major role, including present bias and inertia, low awareness and complexity of options, friction in opening accounts, the impacts of low confidence, stress and scarcity, affordability constraints and competing financial pressures.[11] Nest Insight’s research highlights the scale of this intention-action gap. In trials of one opt-in workplace emergency saving scheme, Jars, 46% of employees said the account would help them, yet only 1% actually signed up to save.[12] These barriers help explain the low take-up of Help to Save despite the scheme being effective for those who use it.

Payroll savings schemes offer a powerful way to overcome product and provider choice paralysis, while the payroll mechanism makes regular saving easier. Employees value saving automatically on payday, with money moved out of take-home pay before it ‘hits their pocket’ while crucially remaining accessible. This reduces loss aversion and creates a practical and psychological separation between spending and saving.[13] Yet, only 7% of UK employers currently offer workplace savings schemes.[14]

The strategy’s focus on promoting payroll saving is therefore very welcome. Together with the FCA’s regulatory statement, this endorsement should give employers and savings providers much greater clarity that opt-in schemes can operate within the existing rules.[15]

However, Nest Insight’s trials find that workplace savings only realise their full potential when delivered on an opt-out basis. Opt-out designs increase participation by around 50 percentage points, with up to seven in ten employees saving when enrolment is automatic rather than voluntary.[16]

Opt-in models also tend to mainly reach people who are already financially confident and able to save. For example, in our trials, 32% of opt-in participants already had at least £1,000 in savings.[17] Any initiative which requires people to actively sign up presents barriers to potential savers – especially those who are most likely to be excluded and who are not already saving – including awareness, friction and attitudinal blockers such as lack of confidence.[18] Opt-out payroll saving directly addresses these challenges and delivers more inclusive outcomes. Under opt-out approaches, only 17% of participants had £1,000 or more in prior savings.

Importantly, evidence finds that opt-out models also do not lead to lower engagement than opt-in models. In other words, employees are saving more and are actively aware of what’s happening, where the money is going and how to access it. For example, seven in ten opt-out participants demonstrated at least one active engagement, such as a withdrawal or change to contribution rate, compared with eight in ten in the opt-in group.[19]

The strategy’s commitment to building a National Coalition of Employers and working with providers to move beyond traditional opt-in models therefore presents an important opportunity to expand the use of opt-out approaches, increase saving participation, and reach those who have previously been excluded from saving.

Although opt-out models are technically possible today, they rely on complex regulatory workarounds and carry significant legal and administrative burdens. Key challenges include requirements around entering into a contract with the savings account provider, consumer acknowledgements of terms and conditions, Know Your Customer (KYC) processes and data-sharing.

While the support set out in the strategy and the work of the Coalition may be sufficient to increase take up of effective opt-out models, it is also likely that some of these challenges would also benefit from clearer regulatory clarification or targeted legislative change.

For example, although the FCA statement provided some reassurance around National Minimum Wage (NMW) requirements, lack of clarity and certainty in this area is still a real barrier for employers. It is likely to remain so unless HMRC updates NMW guidance to explicitly state that money moved on behalf of an employee, into an individual easy-access cash savings account in their name through payroll, does not need to be considered in NMW calculations, as the money remains accessible.

While it is possible to address some regulatory considerations through an employment contract change, this is also not a route that is feasible for all employers. Making clear and certain regulatory space for the wider roll-out of opt-out schemes would likely encourage more employers to offer opt-out payroll saving and would also likely make it more commercially viable for more providers to develop opt-out solutions.

In addition, smaller employers often lack the capacity to prioritise workplace savings, and while many employers are motivated to support financial wellbeing, others will do little without stronger incentives. To ensure all UK workers can access workplace savings, stronger policy intervention may be required.

There is also scope to bolster financial inclusion by unlocking the full potential of Help to Save

Nest Insight is also encouraged by the strategy’s focus on expanding Help to Save. Help to Save is one of the few schemes which provides a direct financial incentive to help people on lower incomes build a savings habit. However, the current model relies on individuals self-identifying their eligibility and navigating a separate, opt-in account-opening process. Given the behavioural and practical barriers outlined above, this structure is unlikely to deliver high take-up, even with a generous government bonus.

To unlock the full potential of Help to Save, we believe there is scope for close integration between the policy design of Help to Save and the focus in the strategy on payroll savings models. For example, allowing payroll savings schemes to be designated as Help to Save accounts would pave the way for the known effectiveness of workplace ‘autosave’ models to extend to Help to Save.

While the model would need to be designed and tested, it is also likely that providers, working with HMRC and DWP, could develop mechanisms to claim the Help to Save bonus on behalf of savers – like the way Relief at Source tax relief operates for pensions. Given Help to Save eligibility is based on in-work benefits, and employers already hold National Insurance numbers for most employees, an account opened by the employer on behalf of the worker could carry the accompanying information needed for such an integration to work.

Integrating Help to Save with payroll saving would reduce friction, support eligible workers to build emergency savings more easily, and ensure they can access government bonuses – supporting the strategy’s ambition to expand the reach and impact of Help to Save and better-aligning the two savings-focused elements of the strategy. This would also eliminate one potential objection to opt-out payroll savings models – that people who are eligible for Help to Save and would be better off under that scheme instead end up in a workplace savings model. Nest Insight would be supportive of the opportunity to work with relevant departments and one or more providers and employers to trial a model that links workplace savings with Help to Save. This would help build the evidence base and bring us closer to understanding how such a model could work in practice.

Links between the Financial Inclusion Strategy and pensions policy

Finally, as discussed above, employers vary widely in their focus on financial wellbeing, and voluntary implementation of payroll savings schemes by employers is least likely to reach workers in smaller firms. To guarantee inclusion at scale, stronger policy levers may be required to scale opt-out payroll saving to all UK workers. While we recognise that pensions themselves were out of scope of the strategy, we would note that building short-term savings into the next phase of auto enrolment offers a promising route, with potential benefits for pensions policy as well as financial inclusion and wellbeing. The potential for this integration was signposted by the then Secretary of State when the new Pensions Commission was announced.

This case is reinforced by evidence showing emergency saving and pension saving are intrinsically linked. Without real income growth, higher pension contributions must be funded through lower consumption, reduced precautionary saving or increased debt. Evidence from the rollout of automatic enrolment illustrates this trade-off clearly. When minimum default contributions rose from 2% to 8% between April 2018 and April 2019, every £1 reduction in take-home pay led to just a 34p fall in consumption. The remaining adjustment came from reduced liquid savings or increased borrowing.[20] For workers living close to the financial edge, higher pension contributions risk crowding out the emergency savings needed to absorb everyday financial shocks. We strongly support a whole-life view of financial inclusion, and policies that acknowledge the interactions between financial security in working life as well as retirement. One example of this approach is found in the National Strategy for Financial Inclusion in the United States.[21]

Evidence from our payroll saving trials suggest that the trade-off between emergency saving and pension saving is not inevitable. Models which allow workers to build emergency savings alongside pension saving show no evidence of increased pension opt-outs or reduced contributions. Instead, people save into accessible accounts in addition to continuing their retirement saving. Importantly, our research also finds some evidence that where payroll savings are designed as a hybrid with workplace pensions – with an automatic rollover feature once a level of savings resilience is achieved – workers can unlock higher overall pension contributions. In our Jars sidecar saving trial – where savings above a target amount were automatically redirected into a workplace pension – 2.7% of participants made additional pension contributions after six months, rising to 4.7% after 18 months.[22] By contrast, just 1.5% of Nest members had ever made an additional voluntary contribution. This finding suggests that building short-term resilience also supports long-term saving within the right product ecosystem.[23]

At a minimum, this evidence highlights the importance of ensuring that any future evolution of auto-enrolment policy considers the impact of stronger pension contribution nudges on the wider financial health of low- and moderate-income workers. But looking ahead, embedding mechanisms that build financial resilience alongside pension saving – such as sidecar models and more flexible contribution structures – offers a potential win-win for pensions policy and financial inclusion objectives. With the Pensions Commission currently examining adequacy, fairness and sustainability, there is a timely opportunity to build on the infrastructure already established through automatic enrolment to deliver opt-out payroll savings at scale. One route would be enabling payroll and pension providers to integrate short-term savings alongside pensions to allow employers to access ‘off-the-shelf’ solutions through existing provider relationships, rather than creating new arrangements. This could ensure inclusion across the workforce, strengthen alignment with the Financial Inclusion Strategy, and demonstrate a joined-up, cross-government approach to delivering financial inclusion at scale.

Stakeholder engagement  

Were all relevant stakeholders adequately represented in the development and delivery of the strategy? If not, who was missing?  

Nest Insight appreciates having been engaged throughout the development process behind the strategy, particularly regarding our emergency savings evidence base. We welcomed the opportunity to share case studies from our workplace emergency savings trials with Co-op, Bupa Care Services and SUEZ Recycling and Recovery UK.

Nest Insight’s work is shaped by our ongoing research with low- and moderate-income households, including our Experts in Action advisory group which works with us to ensure that lived experience is at the heart of our programme. As experts by experience, they inform and challenge our thinking alongside the experts by profession we also consult with. We are pleased that research informed by lived experience was central to the savings section of the strategy.

As the strategy enters the implementation phase, there is scope for more direct involvement of excluded groups, and it falls to all actors across the system collaborating on financial inclusion, including Nest Insight, to ensure this happens. We strongly welcome the Financial Inclusion Strategy’s backing for an industry-led inclusive design working group.

Broader considerations  

Higher levels of emergency savings could support economic growth by increasing hours worked and productivity

There is strong evidence that the Financial Inclusion Strategy’s focus on supporting savings can also support the Government’s growth objectives by improving workforce health, productivity and attendance. Research shows that holding at least £2,000 in savings is associated with nearly a 60% reduction in the odds of falling behind on household bills, compared with otherwise similar households with little or no savings, and significantly lowers the risk of over-indebtedness.[24] Greater financial resilience is in turn linked to better mental and physical health, with extensive evidence demonstrating that people experiencing debt are more likely to report poor health outcomes.[25] It is estimated 46% of people in problem debt also have a mental health problem.[26]

These improvements in health and financial security matter not only for individuals and their families, but also for employers and the wider economy. The peace of mind that comes with having savings reduces financial stress, meaning employees can focus more effectively on their work. Between 2021 and 2023, around 6.2 million private-sector employees experienced reduced productivity as a result of personal financial concerns.[27] Financial distress also drives absenteeism: more than 3.2 million private-sector employees took time off work between 2022 and 2023 due to money worries, resulting in an estimated loss of 16 million working days. The economic costs are substantial, with absenteeism linked to financial stress costing UK employers around £3.7 billion each year, and presenteeism – being at work but less productive – costing a further £6.6 billion annually.[28]

Reflecting these impacts, employers are increasingly recognising a clear business case for supporting their employees’ financial resilience. A nationally representative survey of UK employers in 2025 found that 53% believe financial struggles among employees are likely to have a negative impact on their business. Employers most cited lower morale or engagement (68%), reduced productivity (37%), higher staff turnover (33%), increased health and wellbeing costs (27%), and higher rates of absence (20%) as key risks.[29] This growing recognition strengthens the case for workplace-based approaches to building savings and resilience.

Beyond immediate workplace effects, higher levels of emergency savings can also support productivity through better functioning labour markets. Having a financial buffer can allow individuals to search for work for longer and consider a wider range of opportunities, reducing pressure to accept the first available job. This can lead to better job matches, higher wages and longer job tenure, all of which contribute to a more productive economy.[30] There is extensive evidence linking the generosity and duration of unemployment insurance to improved job quality, with one study finding that increased generosity leads workers to move into more productive roles by enabling longer job searches.[31] In the absence of such insurance schemes, ensuring individuals have sufficient precautionary savings could deliver similar benefits by giving people the financial space to make more suitable and higher-paying employment choices.

Thank you for consideration of this submission. Nest Insight would be pleased to discuss this response further or to provide any additional information that may support the inquiry.

January 2026