Answering your Questions
What is a credit union, and how is it different to a bank?
Credit unions are financial institutions that are owned by their customers. Unlike banks, credit unions serve a specific community, industry or geographic area (known as its common bond), and you become a member when banking with them.
As not-for-profit institutions, credit unions exist for a social purpose, and to promote financial inclusion in the communities they serve. Without the need to pay shareholders, credit unions are typically able to offer better rates and more flexible terms than traditional high street banks.
Credit unions have been a part of the UK financial system for well over 50 years, and there are hundreds of credit unions across the UK serving over 1.4m people. Throughout their histories, credit unions have been at the forefront of the UK’s financial inclusion and well-being agenda—a fact widely recognised by government, policymakers and the community and voluntary sectors.
How much does it typically cost to implement and run a salary deduction scheme?
Typically, the costs to the employer of such a scheme are minimal, or even zero. All that is required to set up such a scheme is the ability to make deductions from employees salaries—something almost all payroll systems support.
Once the scheme is in place, there are very few ongoing costs beyond internal promotion, which is entirely up to you. Typically, your credit union will be responsible for on boarding new members, dealing with employee support requests, and almost all other admin.
Are there restrictions on which employees can join a salary deduction scheme?
Typically, when you partner with a credit union, all directly employed staff will be able to join the credit union and begin saving via salary deduction, and there are no minimum or maximum limits. By law, all credit unions serve a defined group of people (known as a common bond). The common bond is usually based on a particular geography, industry or profession, so there may be complexities that apply to indirectly employed staff or contractors, if they fall outside of the credit union’s common bond.
I am worried that a credit union scheme would just encourage staff to take on debt.
Employers are understandably cautious about being seen as encouraging debt among their staff. However, it is also worth bearing in mind that for almost everyone, borrowing is a normal a fact of life. There will be few colleagues who do not have a mortgage, car finance or credit card, and many may even be struggling under high-cost, unsustainable debt.
A credit union salary deduction scheme ensures that there is an affordable, fair option in place for employees in need of emergency, short-term borrowing, while providing a great-value alternative to credit cards and overdrafts for planned borrowing.
As not-for-profit institutions, you can trust your credit union to take a common-sense, responsible approach that does right by your staff. Typically, they will work with you to promote the scheme in a way that is consistent with your company culture and appropriate to the needs of your staff.
How do I know that the money staff save with the credit union is save?
All credit unions in the UK are registered with the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), and subject to the same types of regulatory oversight and financial requirements as high street banks.
These protections are reflected in the Financial Services Compensation Scheme (FSCS), of which all credit unions are members. Under the FSCS, all deposits up to £85,000 per member are guaranteed by the UK government, and will be repaid in the event of a credit union’s failure.
How do credit unions compare with for-profit salary finance companies such as Neyber and Salary Finance?
In recent years, a number of for-profit operators have entered the UK market offering salary-deducted loans, earned salary advances, and other financial products. Many are aggressively promoting themselves to major employers in order to obtain access to staff.
While the marketing proposition and technology on offer is undeniably impressive, it is worth bearing in mind that these are commercial, for-profit businesses. Many are under pressure from their funders to generate lending revenue from your employees, and in some instances, have abruptly ceased trading after assumptions about profitability and take-up have not been met.
With a credit union, you can trust us to be ‘in it for the right reasons’. To us, your employees are members and owners of the credit union, not just customers. Credit unions have successful track records in running salary deduction schemes — in some cases over many decades, and are fully authorised and regulated.
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