UK trialling ‘sidecar savings’: Expert says NZ could do it better

David Boyle says that New Zealand is in a prime position to lead the world in this new trend of financial security.

Wednesday, April 28th 2021, 7:00AM

by Daniel Smith

David Boyle

The UK is trialling the addition of a sidecar savings mechanism within their existing auto-enrolment workplace pensions.

David Boyle, head of sales and marketing at Mint Asset Management says that while the idea of sidecar savings is not necessarily new, “in New Zealand terms we have a great facility already set up by way of KiwiSaver to capture people’s contributions.

“If you look at what they are doing in the UK, New Zealand could do that even better, we could roll it out on a national level.”

Sidecar savings, or contingency savings, act as insurance against unexpected, irregular and unpredictable expenses. Boyle sees this type of savings scheme functioning with contributions collected in the same way as KiwiSaver.

It would be a cash-plus account offered by all KiwiSaver providers online, and once a set figure was reached future contributions could then go into the KiwiSaver investment portfolio.

When funds are called on for an unexpected expense the contributions would go back to fill up the emergency fund. Access to these savings would be easier and not via the hardship process.

Boyle says the idea is one that advisers could have a key role in implementing.

“If you look at it from the advisers’ perspective they would have in any decent plan a place where they would allocate a certain amount of money for life’s unexpected events.

“What this means is that [for] those who are looking to build up savings or investments, they can do [so] with the confidence that they have [created] that buffer.”

According to Boyle, Covid-19 has highlighted the need for additional savings, both for advisers and average New Zealanders.

“In Covid people weren’t [financially] prepared. If they do not get prepared then we will see more and more people dig into their retirement savings which will have an impact on their financial future.

“The sidecar savings [would] help mitigate the costs and the time surrounding hardship withdrawals. If you talk to any KiwiSaver provider…a big part of their admin work…is [around] hardship funds [withdrawals].

“If they could find a way around this like they are doing in the UK, look at working with providers to develop something like this that is outside the lock-in restraints of KiwiSaver.”

Boyle says he will be watching the developments in the UK closely.

“It will be good to see what insights they get from this over in the UK. We could use it as a foundation to build on.

“This could be a way to encourage savings that is easy to do and doesn’t require a [lot] of paperwork.”

Tags: David Boyle investment KiwiSaver sidecar savings