How can investors cushion the Covid-19 blow?

After weeks stuck at home, our lives dangling in suspended animation, it becomes easier to think of ways in which life has changed than ways it hasn’t. We leave the house only to buy essentials, to walk or let the children ride their bikes. Weekdays and weekends merge. Many of the things we used to do—and spend money on—have stopped. 

The household bills must still be paid, but the amount we spend on everything else has shrunk dramatically. Although that’s a chilling portent of what lies ahead—representing money no longer finding its way into other people’s pockets—it is also a source of comfort, especially if you’re self-employed. I’ve always kept a rainy day fund to tide us over times of no income, but thanks to still having some work and spending less, we’re now building up a bigger cushion.  

Naturally, emergency interest rate cuts and other efforts to avert economic disaster mean that there will be no financial reward for any extra saving we can do, beyond the money itself. Covid-19 may finally kill off the expectation that saving earns you interest income, at least for the foreseeable future. 

But that’s no longer the point. Instead, in times of extreme uncertainty, saving brings emotional payback: it helps us feel safe. I’ve tended to use premium bonds for rainy day savings because you can cash them quickly and, although returns are negligible, you stand a small chance of winning a prize or two. 

That’s all fine, of course, if you went into this crisis with a buffer. But millions didn’t: in 2016, the former Money Advice Service reported 16m UK adults had less than £100 in savings. 

I suspect one outcome of this crisis—given unprecedented state support for business—will be to reset society’s expectations of how much companies should help people. A prime area for attention should be using direct payroll deductions to enable employees to build up savings without having to think about it, much like how auto-enrolment into workplace pensions works. 

As it happens, Nest Insight, an independent research group that sits within Nest Corporation, the workplace pension provider, is conducting a long-term trial of this idea, called “Jars,” with six companies that have 75,000 employees between them. Those that opt in can decide how much to save each month and how big an emergency fund they want to build up—once they hit their target, additional savings are channelled into their pension to increase their contribution rate. 

It’s a neat idea and the first findings will be published in the autumn. Ministers should pay close attention—Covid-19 has made this an idea whose time has come.