The Financial Conduct Authority’s (FCA) recent statement on workplace savings schemes, which aims to clarify regulations and encourage employers to adopt these programs to enhance employees’ financial resilience across the UK.
The Power of Workplace Savings
Workplace savings schemes allow employees to save directly from their payroll into accessible cash accounts, with the flexibility to adjust or stop contributions anytime. Research from Nest Insight shows these schemes promote healthy saving habits, bolstering financial security and contributing to economic growth. Yet, only 7% of UK employers currently offer them, often due to concerns about regulatory complexity, according to the Department for Work and Pensions.
The FCA’s 2024 Financial Lives Survey reveals a pressing need: 1 in 10 UK adults have no cash savings, and 1 in 5 have less than £1,000 for emergencies. Even a modest savings buffer can help prevent problem debt and support mental and physical well-being during financial shocks.
The FCA’s statement focuses on opt-in schemes and provides guidance for employers, payroll providers, employee benefit platforms, and savings providers to implement them within existing rules.
Navigating Regulatory Concerns
The FCA addresses key regulatory questions raised by stakeholders:
1. National Minimum Wage (NMW) Compliance
Employers must ensure deductions for savings don’t violate NMW regulations. To stay compliant:
- Employers must ensure a worker receives at least national minimum wage pay for each reference period.
- Any deduction or payment for the employer’s own use and benefit or expenses connected to the employment would normally reduce pay for NMW purposes.
Employers should therefore seek to avoid the below risks when putting in place workplace savings schemes:
- The funds allocated to workplace savings accounts are held by the employer or the workplace savings account is not in the employee’s name.
- Schemes where employees incur charges when accessing funds – either withdrawing them or transferring them to a current account.
- Delays when employees access their funds which could mean the employee falls below the minimum wage for that reference period.
2. Regulated Activities under FSMA
Employers can design schemes to avoid regulated activities under the Financial Services and Markets Act 2000 (FSMA) by transferring funds directly to savings providers. However, communications about the scheme may be considered financial promotions.
3. Financial Promotions
Communications encouraging employees to join a scheme may qualify as financial promotions under FSMA Section 21. To comply:
- Communications must be issued or approved by an FCA-authorised entity, such as the savings provider.
- Exemptions, like Article 22 of the Financial Promotions Order for deposits, may apply.
- Purely informational communications, without persuasion, are not financial promotions (see PERG 8.4 and 8.4.34G).
4. Banking Conduct of Business (BCOBS) Requirements
Savings providers must provide account terms in a durable medium before employees are bound by a contract (BCOBS 3.1.6R). Employers or payroll providers can streamline this by including terms in onboarding processes.
5. Customer Due Diligence (KYC)
Under the Money Laundering Regulations 2017, savings providers must perform Customer Due Diligence (CDD). Simplified CDD may be used for low-risk cases, and providers can use employee data from employers or payroll providers to reduce friction.
6. Data Protection
Sharing employee data with savings providers requires a lawful basis under UK GDPR, such as contract, consent, or legitimate interest. The ICO’s Data Sharing Code of Practice offers guidance on responsible data sharing.
7. Financial Services Compensation Scheme (FSCS)
Savings providers must provide an FSCS information sheet and obtain employee acknowledgment before opening accounts (PRA Rulebook, Depositor Protection Chapter 16). This can be integrated into the application or onboarding process.
Consumer Duty
Savings providers must comply with the FCA’s Consumer Duty, ensuring workplace savings products deliver good outcomes for employees, as with all retail financial services.
A Collaborative Effort
The FCA is partnering with the Department of Business and Trade, HM Treasury, the ICO, the PRA, Nest Insight, and industry to promote workplace savings. This aligns with the FCA’s financial inclusion goals, as outlined in the Government’s 2024 remit letter and its work with the Financial Inclusion Committee.
What’s Next?
The FCA encourages employers to adopt opt-in workplace savings schemes under current rules. For opt-out models, the FCA is working with stakeholders to explore legislative changes to unlock further potential.
For full details, visit the FCA’s website.
