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Three-fifths of low and middle income households are currently unable to save money, while for people already saving, the ratio between spending and saving is dramatically falling, researchers say.

A new report from CHASM, University of Birmingham’s research Centre on Household Assets and Savings Management, is calling on the government and employers to do more to help those on lower incomes to start saving. CHASM is a research centre based jointly in the School of Social Policy and Birmingham Business School at the University of Birmingham.

The report found that around 16 million people in the UK have less than £100 in savings, which researchers say creates too much financial risk, something which households should be looking to mitigate.  Low incomes are a key barrier to saving but policy change could nevertheless help people to save more.

The report’s key recommendations include:

  • The government should enhance the Help to Save Scheme to make it more flexible and more generous. The money for this could come from rebalancing the amount spent on savings schemes that benefit the better off.  For example, the cost of tax breaks on Individual Savings Accounts amounted to £2.6 billion in 2015/16, while the Help to Save Scheme is only expected to cost £70 million per year by 2020/21.  A small reduction in the cost of ISA tax breaks could be directed to the Help to Save Scheme.
  • For those in work, employers should provide and promote Save as You Earn schemes, working in conjunction with credit unions where appropriate. These schemes are free to set up with credit unions, who can handle the administration of the schemes.
  • Joined-up working at local level is important, such as Birmingham’s Financial Inclusion Partnership, can lead to important initiatives, like Birmingham Money, to support those on lower incomes. This joint working involves local authorities, credit unions, community development finance initiatives, Citizens Advice, charities and housing associations among others.

The report makes ten key recommendations:

  • A new government spending formula should be developed, linking the amount of support for lower income savers to the level of help given to ISA savers more generally.
  • Policy makers and commercial providers should build on the principles of Help to Save and develop more flexible savings mechanisms and products that coincide with the needs of lower income savers. Matched savings schemes need to be lower, and more realistic targets for savers to reach before rewards from the ‘matched’ saving can be realised.
  • Savings products need to be designed with realistic and positive savings goals as their focus.
  • More needs to be done to meet the appetite for trusted ‘brands.’ Civil society has an important role in creating and sustaining locally branded, trusted savings institutions through effective sign-posting.
  • Central and local government should support the creation of a number of national brand leaders in the Credit Union sector, working with civil society to encourage people to save and to build trust with Credit Unions.
  • The rules governing information routinely provided to savers should include the obligation to inform them of alternative products or more recent offers. Higher standards of service will include this level of transparency, as well as helping lower-income savers navigate the process of switching/ opening an account.
  • Commercial providers should be prevented from defaulting savers onto the lowest interest rate. Instead, lenders should default to a capped percentage of the account opening Offer rate.
  • A Savings Commissioner should be established along the lines of the Children’s Commissioner, with responsibility to protect and promote the interests of savers, particularly those on lower incomes. The Commissioner should also have statutory powers to ensure acceptable standards of transparency in the savings market and to encourage a higher standard of service.
  • Employers should be encouraged by government to provide savings services to their employees. The success of national pension auto-enrolment should be emulated for shorter-term savings, with employers automatically deducting a small proportion of a monthly income, unless employees choose to opt out.
  • Local Authorities should be enabled to take the lead in bringing state, community and commercial providers together to deliver a savings strategy.