Context

The UK government plans to introduce a ‘Help to Save’ scheme from 2018 to help boost savings among working age people with a low income. The scheme will offer up to 50% matched contributions up to £50 of savings per month. Bonus payments will be paid after two years.

This briefing paper draws on survey evidence to make recommendations for how the scheme should be implemented and what other measures can help boost savings among people on a low income.

The study

• 1,551 people on a low income (receiving benefits or making less than £21,000 per year), similar to those being targeted by the Help to Save scheme, completed a survey about their spending and saving behaviour and preferences. The fieldwork was conducted online between June 28th and July 11th 2016
• Survey respondents were drawn from StepChange Debt Charity clients, who had visited the charity between 2015 and 2016.
• The survey included questions about the proposed features of the Help to Save scheme in order to assess the suitability of the scheme for its target beneficiaries.

Key findings

:

• The vast majority of respondents would prefer a bonus that they could access sooner than the proposed two-year period (34.8% every month, 31.1% every six months, 23.9% every year).
• This reflects that four in ten respondents experience an unexpected cost once every six months. Just over half 51% of respondents reported that these unexpected costs usually came to over £200 in an average two-year period – an extra financial burden, which is equivalent to over four months of maximum saving contributions, under the scheme.

• The majority of respondents would be more likely to save if deductions were made automatically (41.4% ‘much more likely’, 20.2% ‘more likely’).

• Currently, those under 25 only qualify for Working Tax Credits if they work at least 16 hours a week and qualify for a disabled worker element, or are responsible for a child.
• This excludes anybody under 25 who does not qualify for a disabled worker element, or is not responsible for a child, from having a ‘Help To Save’ account. The report suggests expanding the eligibility criteria to include these individuals will improve the reach of the ‘Help To Save’ account.

• Many ‘Help To Save’ account holders are likely to face financial difficulty, leaving them vulnerable to third party debt orders and potentially insolvency.
• As such, the reports suggest that the government should protect money in ‘Help To Save’ accounts from third party debt orders or insolvency proceedings. As a minimum, the bonus accrued should be protected, to prevent taxpayer money going straight to debt collectors.

• Prize-linked saving (PLS) schemes (where account holders have the chance to win a prize, such as a sum of money, on a regular basis) have been shown to appeal greatly to consumers who do not have regular savings habits or who have little existing savings. The report suggest commercial providers should examine the use of prize-links within low-income savings products.
• Similarly, digital ‘nudges’ (where firms use online and mobile tools to encourage better savings behaviour among customers) could be used as part of a wider strategy aimed at boosting savings utilising both behavioural and structural elements, to encourage low-income families to maximise savings.

• The report suggests pension auto-enrolment could be adapted to help people build up short term precautionary savings.
• By harnessing behavioural incentives, the government can ensure families save the amount they need, but also maintain their savings balance for when they need it most.
• This would not mean a significantly reduced retirement income for individuals, or an increased cost to employers, pension schemes or the tax payer.

Points to consider

This research is particularly timely given plans to launch the ‘Help to Save’ scheme in 2018.

• The survey employed a relatively large sample of people on a similar income to those being targeted by the Help to Save scheme;
• However, since the respondents were all drawn from clients seeking debt advice, it may be that they are not representative of people on a low income in general.

• This research will be useful for those charged with implementing the ‘Help to Save’ scheme as well as those looking for up-to-date insights into savings among people on low income.
• The report offers several recommendations about promoting saving for this group that will be of interest to those who provide related services.

Full report

StepChange – boosting lower-income saving survey - full report