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Becoming a nation of savers

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Overcoming the UK's saving crisis

Few things can disrupt a family's financial wellbeing like an unexpected expense or an emergency. Events such as redundancy, a relationship breakdown or the death of a loved on can set a family back financially for months, even years.

Having accessible savings helps families avoid problem debt, promotes financial inclusion and leads to wider social benefits regarding employment, healthcare, and children's life prospects, but families in the UK are facing a crisis when it comes to saving for a rainy day.

Strengthening the saving safety net – July 2017

Our 2015 report, Becoming a Nation of Savers, illustrated how an accessible emergency savings fund of £1,000 within a pension could reduce the number of families at risk of problem debt by 500,000.

Our Strengthening the Saving Safety Net paper summarises and responds to Pension Policy Institute (PPI) research commissioned by StepChange Debt Charity analysing the impact on retirement income of creating such an accessible savings fund within a pension.

The PPI found the impact on low-to-median earners would be minimal, meaning no greater than a 2.1% reduction in weekly retirement income. This trade-off between averting a debt crisis and a minor reduction in pension income appears acceptable and would be welcome in most cases.

Download our 2017 report

Boosting lower income saving – September 2016

We welcome the government's Help to Save (HTS) scheme. The HTS scheme, arriving in 2018, will be a key tool in helping boost savings, as long as it is implemented effectively.

However, the scheme itself will not be enough alone to solve the problem. In the long term more innovative approaches to saving must be looked at by government and commercial financial services providers.

Our briefing discusses how HTS should be implemented and what more can be done to boost lower-income saving. It contains the results of a survey of our clients on the provisions of the HTS scheme and their ongoing savings needs, which found:

  • Four in ten people struggling to save experience an income shock, like a broken boiler or car repairs, at least every six months
  • 60% of those facing an income shock turn to borrowing
  • A third of those cut back on essentials, like food, to cover the costs
  • Almost two-thirds believe having savings automatically deducted from salary or benefits would make them more likely to save

Download our 2016 report

4/10 people in problem debt experience an income shock at least every 6 months

Becoming a nation of savers

Our discussion paper builds on our earlier work to show, via new research, which families in the UK are least likely to have saved enough for a rainy day and offer options for how the pension auto-enrolment scheme could be adapted to deliver £1,000 savings for these families and others.

We also call on financial services firms to consider products to enable low-to-moderate income families to save, and suggest how the welfare system could be evolved to include a savings element.

21.8m adults in the UK aren't confident they're saving enough to cope with a rainy day. StepChange Debt Charity commissioned survey from YouGov, weighted sample 1707 GB adults, 12-13 July 2015

The savings crisis in the UK

Our latest research research shows that:

  • People on low-to-moderate incomes, people in rented accommodation and people with younger children are least likely to have £1,000 in precautionary savings
  • Economic influences such as low income and high outgoings are factors which prevents many families from saving
  • Behavioural barriers such as bounded rationality, inertia and procrastination also prevent saving

The policy challenge is to get families saving by helping them overcome the economic and behavioural barriers which are currently preventing them from saving.

Our proposal

We want to see an improvement in financial resilience and a reduction in the level of problem debt in Britain. That's why we believe all families should have a minimum of £1,000 saved to help them cope during a 'rainy day'. 

Incentives such as auto-enrolment, matched funding and prize-links have been used successfully in the UK and other countries to get families saving. We must use these incentives again to solve the savings crisis. 

500,000 families could be prevented from falling into problem debt if they had £1,000 in savings. StepChange Debt Charity's Action Plan on problem debt, 2015

Our recommendations

  1. The government should set a target for all families in the UK to have at least £1,000 in accessible cash savings.
  2. The government should work with employers, pension providers and banks to allow struggling savers to build a rainy day saving buffer via the pensions auto-enrolment system. There are features of the model which would benefit from piloting, to test the effectiveness of different combinations of incentives
  3. Banks should explore, develop and ultimately pilot savings accounts which allow families to access preferential savings rates and offers even if they can only open accounts with a small deposit and only pay in small amounts on an intermittent basis subsequently.
  4. Financial services providers should explore the use of prize-linked savings accounts which appeal to lower-income consumers.
  5. Government should build a saving element into the welfare system via income thresholds and work allowances in Universal Credit and tax credits.
  6. Government should expand current trials of credit union accounts for pupils linked to financial education to secondary schools.
  7. Enhance the current proposal to include a savings element in the budgets of people receiving debt advice to resolve financial difficulties by:

a) formalising the saving from a provision in the individual’s budget to a deposit in an accessible savings vehicle;

b) ensuring creditors and essential services providers are fully engaged with the process;

c) the FCA explicitly acknowledging the benefits of saving in a client budget, as long as the consequences are fully explained to clients in terms of taking longer to pay down debt.

Download the discussion paper

There is much to do to overcome the savings crisis. But considering the benefit having a 'rainy day' fund brings to struggling families, it must be overcome. The UK already has many of the tools needed at its disposal to make the attempt a success. It should use them. 

Download the discussion paper now for the full picture. 

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