Ellie Lugt
The Behavioural Insights Team
The UK savings problem
The Money and Pensions Service (MaPS) estimates that 11.5 million people in the UK have less than £100 in savings, leaving them incapable of withstanding financial shocks such as unexpected health issues or house repairs. Unfortunately, with inflation approaching an all time high and the cost of living soaring, it is likely that the number of people who are financially stretched will increase over 12 months. This savings problem has real world consequences. Research from the Money and Mental Health Policy Institute has shown that a lack of financial buffer can lead to a reduction in productivity, compounded mental health issues and a poorer quality of life.
But why should the responsibility for saving lie solely with the individual, especially in such unfavourable economic conditions? Indeed, half of people would like more help with saving from their employer! With this in mind, the Behavioural Insights Team (BIT) partnered with the MaPS) to implement and improve the uptake of an employer payroll saving scheme at the professional services company Capita.
What are payroll savings, and how can they help?
A payroll savings product automatically deducts a portion of an employee’s regular salary and transfers it into a savings account, removing the administrative burden of moving money from one account to another from the employee. Despite hugely reducing the effort of saving, encouraging both employers and employees to take up such schemes is challenging. MaPS has previously identified payroll saving schemes as a route to help build financial resilience and wellbeing at scale amongst adults who are financially struggling or squeezed.
This project forms part of a larger programme of payroll savings research funded by MaPS. This programme of research includes a project evaluating a payroll savings scheme with Leeds Credit Union, and evaluating Sidecar Savings and an opt out savings mechanism with Nest Insight. These projects have shown that payroll saving schemes have promise, but there is more to be done to encourage people to take them up.
To improve the experience of signing up to payroll savings products, we worked with Capita and the platform provider, Level Financial Technology, to design and test the impact of a new payroll savings product. We carried out user testing and incorporated behavioural science into the design of the app, in addition to designing and testing behavioural-science informed emails which were sent to Capita employees encouraging them to sign up. Here’s what we found:
Behavioural science can make payroll savings more effective
Whilst offering payroll savings is a great first step, behavioural barriers can deter people from signing up. People are susceptible to present bias and focus on the immediate cost of saving at the expense of the future benefit. Additionally, the ostrich effect results in people ‘burying their head in the sand’ rather than saving. We tested solutions to overcome these barriers. The most effective solutions included:
- Making it (seem) easy to sign up – by using an ‘soft default’ email subject line ‘we’ve set up an account for you’, we highlighted how easy it is to set up an account and start saving. The soft default email led to a 4-fold increase in people signing up to save. We also removed ‘frictions’ in the app, meaning the initial set-up was simple and quick. Users appreciated that they could set everything up on the app, without requiring additional paperwork.
- Increasing the default savings setting to encourage higher levels of savings – due to inertia, people tend to stick to pre-set settings, therefore we set the default saving amount to a level users reported to be ambitious but realistic. We found that the majority of users stuck to the default savings amount of £50.
- Reminding people of the impact of starting small i.e. small savings every day can add up to a lot over a year and that can cover most unexpected expenses.
- Incentivising sign-ups with a £5 sign-up bonus and entry into a £1000 prize draw. The incentive tripled sign-ups during the first two weeks after they were announced.
Payroll savings support financial wellbeing, which in turn benefits employees
We found that people who signed up for payroll savings increased their confidence in managing their money and built a regular savings habit that created an initially small (but growing) savings buffer. The product helped those most likely to struggle financially: it was most attractive to and had the biggest positive impact on people who earn under £25,000 each year, have little or no savings, and find it difficult to save consistently.
Employees appreciated that their employer, Capita, offered this benefit, with some even describing the product as “transformative” and “completely changing the way [they] save”. Our findings are consistent with wider research which shows financial wellbeing programmes can improve overall wellbeing and performance (What Works Centre for Wellbeing), as they can reduce the negative consequences of financial difficulties, such as lowered ability to concentrate and diminished motivation (Money and Mental Health Policy Institute).
User case study |
| “Anya” is a 41-year-old single parent, with two daughters on a £29,000 salary. She has always felt that she could save a bit more every month – but the money just disappears from her account.
After using the app for six months, she noticed positive changes in her savings habits: “I finally managed to store away a small pot for any emergencies, it gives me peace of mind if I have any needs with the house or the car”. |
What’s next?
Payroll savings products can be a powerful way to support the financial wellbeing of employees. However, even with a well-designed product, it can be challenging to get people to sign up. Based on this project we have the following recommendations:
- Payroll saving schemes should be implemented more widely across the UK – they work and are ‘appreciated’ by employees. There is also further demand with 72% of employees saying they would like access to a workplace savings scheme (Cushon).
- Employers and payroll savings providers should consider applying behavioural insights to the design and promotion of opt-in payroll saving schemes, to make schemes more effective.
- Employers should trial different approaches to employee financial wellbeing to see what works and tailor the product to their employees’ needs. This could include auto-enrolling employees to payroll saving and giving them the option to opt-out of the scheme rather than opt-in, testing more personalised support and guidance, or sharing prompts when employees join or change roles.
