Scotland's Credit Unions: Investing in Our Future

Theme one: Payroll deduction schemes

13. Whilst walking distance credit union services retain a valuable role in community life, payroll deduction allows an employee to save into a credit union account directly from their pay package. It is administered by an organisation's payroll department in collaboration with the credit union.

14. All the credit union trade bodies and large unaffiliated credit unions in Scotland feel that payroll deduction schemes are a crucial part of achieving sustainability, offering as they do long-term savers, drawn from a demographic in regular employment. They help build a more diverse membership for the credit union by providing a convenient service for middle to high income earners.

15. In their response to HM Treasury's June 2014 call for evidence on the future of the UK credit union sector, the main credit union trade bodies had highlighted payroll deduction schemes as a priority for the sector.

16. As noted in StepChange Debt Charity's Action Plan on Problem Debt (2015), maintaining a savings buffer can be a crucial lifeline if hit by unexpected financial loss. It can provide some breathing space whilst longer term support is sought.

17. Payroll deduction schemes are an excellent method of saving regularly, and Scottish Government is keen to encourage employers to offer this as a standard workplace benefit.

18. Both the Scottish Parliament and Scottish Government offer the option of credit union payroll savings for staff.

Provision and process

19. The Working Group undertook a mapping exercise via the Group's credit union representatives to get a sense of how many credit unions were currently offering payroll deduction and if not, who would be interested. Responses were received over a number of months in 2014, and a mapping log created.

20. If the 28 credit unions who responded to the survey, 79% ran payroll deduction schemes, and the 21% who did not were all interested to find out more or to receive assistance in developing one.

21. Credit unions report significant challenges in persuading employers to sign up to payroll deduction and a lack of promotion amongst the staff even if they do.

22. Although operational issues are a concern, many credit unions report that two of the biggest obstacles are building and maintaining partnerships with employers, and then attracting new members once partnerships are established.

23. This has proven to be extremely resource intensive, and those schemes that have been the most successful have enjoyed input from a workplace "champion" of some sort. Credit unions often indicate that they find it difficult to know how to make the right approach to employers, particularly larger organisations based in multiple locations.

24. To date, the most successful employer partnerships have been with local authorities. Indeed, it is no coincidence that the largest credit unions in Scotland began as the credit unions for some of the country's biggest councils. These credit unions enjoyed a staffing and resource commitment from the local council, as well as active endorsement to employees and a culture where staff were encouraged to join the credit union.

25. Further examples of this promotion of credit union membership as an employee benefit can be seen in other public sector bodies in Scotland, including the National Health Service and Police Scotland. It is worth noting that the credit unions with the most successful record of working with private sector employers - namely in the transport and postal sectors - were established prior to the privatisation of these industries.

26. It is often noted that there is very low awareness of the potential benefits of credit union partnerships by private sector employers, which may be affected by the inaccurate perception in some quarters that a credit union is a "poor man's bank". This misunderstanding of credit unions' function and services leads many employers to question the need for a partnership with a credit union.

27. Employers can highlight to their staff the benefit of automatic regular saving in reducing stress linked to financial worries. Working Group representatives highlighted the following:

• Payroll deduction is a simple process with administration largely handled by the credit union, not the employer;
• The contractual relationship is directly between the credit union and the member of staff therefore there is no risk to the employer regarding loan repayments and saving security. The employer only acts as a conduit for the transfer of funds;
• Helping staff to join a credit union and thereby building the sector's capacity to help financially excluded consumers in communities across Scotland is a significant demonstration of a company's corporate social responsibility;
• Saving via an automated payroll deduction arrangement helps staff to build a buffer to cover unexpected expenses;
• The ability to access credit and repay loans in affordable instalments direct from payroll helps employees stay away from high cost lending which may damage their financial wellbeing;
• Savings in a credit union are covered by the Financial Services Compensation Scheme up to £75,000 per person - exactly the same protection as savings in a bank or building society.

28. Due to a lack of information about how to put such partnerships in place, employers often also have misconceptions about the administrative burden and bureaucracy involved, and they may also be unclear about which credit union(s) could best serve their employees.

29. The Chartered Institute of Payroll Professionals (CIPP) are working actively to increase uptake of payroll deduction schemes amongst public and private sector bodies, and have developed an Employer Engagement Standard.

30. The Chief Executive Officer of CIPP attended a meeting facilitated by the Working Group, which aimed to link up credit unions and private sector employers. CIPP called for all businesses to offer saving through payroll within their benefits package as part of its support for International Credit Union Day 2015.

31. CIPP report that business and payroll providers had identified the transfer of different forms of data to credit unions as a barrier to uptake of payroll deduction schemes. To remove this barrier, CIPP launched a payroll data transfer standard which would enable a smooth transfer of data to any credit union. CIPP worked with credit unions and payroll professionals to develop the standard, ensuring that users fed into the design.

32. Scotwest Credit Union were a key contributor to the development of the standard, and their straightforward payroll process is as follows:

1. The employer agrees to provide payroll deduction services to its staff;

2. Credit union recruit new members;

3. Each pay run, credit union provides the employers with a list* of their staff and the amounts to be deducted;

4. The employer deducts the monies and sends the credit union a list* of deductions followed by a BACS payment for the total amount;

5. The credit union allocates the amounts to the relevant member's accounts (and chase up any discrepancies between the two lists).

*password protected excel spreadsheet

33. Employers are not restricted to operating a scheme with just one credit union, but can enter agreements with a variety of local credit unions to offer staff the choice of holding their savings in the local community.

34. In the most successful credit union sectors around the world, the recognition of credit union membership as an employee benefit and widespread understanding of the advantage to employers of their staff having access to regular savings and affordable credit have taken root. This has led to many successful partnerships with employers and a culture in various industries and workplaces where credit union membership via payroll deduction is considered a standard employee benefit.

35. This is especially true in the United States, where over 100 million people are credit union members (America's Credit Unions, 2015), and most credit unions emerged from employment-based common bonds. There has long been a recognition in the United States of the interlinked relationship between employees' financial wellbeing and their productivity - and therefore, the contribution that a financially healthy workforce makes to an employer's profitability.

36. Research by the United States credit union think tank, the Filene Institute, reported that, 'There is a close relationship between employee financial health, productivity, and employer profitability,' and that the result of a financially capable workforce was, 'less absenteeism, fewer accidents, less job turnover, lower benefit costs, and higher profits.' The report also concluded that, 'employees who are financially secure are also better able to learn, change, and grow with the company,' and that, 'when employers realize that employee financial problems result in lower production, they see that it is more expensive to ignore money problems than to confront them.' (Filene Research Institute and The Center for Credit Union Innovation LLC, 2002).

37. Research by StepChange Debt Charity in 2014 drew similar conclusions in a British context, calculating the social cost of problem debt in the United Kingdom at £8.3 billion - with £2.3 billion of this loss to the economy directly related to absenteeism, lower productivity or loss of employment.

38. There is therefore a strong case to be made to Scotland's private, public and third sector employers alike for a cultural change which would see access to credit union services via payroll deduction become a standard workplace benefit across the country.

39. The First Minister of Scotland, Rt Hon Nicola Sturgeon MSP encourages Scottish employers to partner with a credit union to enjoy the benefits for both staff and the organisation.

Scottish Business Pledge

The Scottish Business Pledge is a values-led partnership between government and business. Built on a commitment from the Scottish Government and its partners to support sustainable business growth in Scotland, it offers a voluntary

code of business practice which can be used to guide and boost the development of a company. Scottish Government, for its part, pledges to ensure that prosperity, innovation, fairness and opportunity develop in Scotland.

In recognition of both the ethical financial model offered by credit unions and the contribution of payroll deduction savings in increasing financial capability, Scottish Government included an encouragement to employers within its voluntary progressive workforce engagement commitment:

'…by establishing a payroll deductions scheme with a credit union you could be helping your workforce to take control of their finances. Credit unions provide a range of savings accounts and loan products to suit individual needs.'

Credit unions themselves can also sign up for the Business Pledge. More information can be found at https://scottishbusinesspledge.scot/

Public bodies

40. In 2015, all public bodies registered with Scottish Government were contacted to highlight the benefit of credit union membership and to recommend payroll deduction schemes.

Credit Union Expansion Programme (CUEP) - Payroll Deduction Scheme Toolkit

41. CUEP (discussed at sections 102-110) launched the B2B (Business to Business) toolkit, designed to encourage employers to offer payroll deduction to credit unions and to encourage employees to join the credit union. It is currently being tested by credit unions in Scotland and Wales, with seven Scottish credit unions utilising it.

42. An evaluation of the B2B toolkit is expected in March 2016 once the outcome of the campaign is known and data available.

Next steps

43. The First Minister's letter will be included a payroll deduction pack the Scottish Government is developing with CIPP and credit union representatives. This will be available for use by all credit unions who wish to offer a payroll saving scheme. It will include advice on marketing a scheme and information on the CIPP's data transfer standard and service level agreement.

44. Once in place, employers should highlight the option in staff induction packs, and work with the credit union partner to undertake periodic awareness raising.

45. The Scottish Government will explore with Scottish Enterprise, Business Gateway and Highlands and Islands Enterprise encouraging businesses to offer payroll deduction schemes with credit unions as a standard employee benefit.

46. Scottish Government encourages local authorities and all public bodies to offer payroll deduction schemes with local credit unions.

47. Money Advice Scotland are running a Financial Capability Team (established in 2014 with funding from Scottish Government). This team has undertaken to engage with employers to specifically promote payroll deduction schemes with credit unions as a positive contribution to the financial health of Scotland.