Families across Britain face a ‘triple savings challenge’ of insufficient ‘rainy day’ savings, an inability to cope financially with bigger life events like family breakdown, and inadequate retirement incomes. All three can be addressed by building on the success of auto-enrolment into pension saving to encourage more liquid saving.
Over 11m have less than £1,000 in savings
More than 11 million Britons have less than £1,000 in savings reports the UK think tank.
The Resolution Foundation and the abrdn Financial Fairness Trust have been examining the state of saving across Britain. The report, Precautionary Tales, examines what can be done to help build up financial resilience amid the cost-of-living crisis.
It notes that modest savings of £1,000 can help with unexpected costs such as broken fridges and car repairs. But larger savings are needed to cope with bigger life events such as unemployment or family breakdown.
The report adds that pension coverage has been transformed over the past decade. The share of people saving into a pension is up from 47% in 2012, to 79% in 2021.
However, too many are still not saving enough for an adequate income in retirement.
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The Foundation says all three savings challenges can be met by learning from the opt-out approach of auto-enrolment.
It calls for auto-enrolment contributions to be gradually increased from 8% to 12%. And suggests that employer and employee contributions are matched at 6% each.
These 12% contributions should include a 2% contribution into an easy access ‘sidecar savings’ scheme of up to £1,000. Contributions above this level should be deposited into a pension pot. This would revolutionise the number of families with ‘rainy day’ savings in the same way that auto-enrolment has transformed pension saving, At the same time it would also boosting people’s retirement incomes.
13m Brits not savings enough for adequate pension income
Molly Broome, Economist at the Resolution Foundation, said: “Families across Britain face a triple savings challenge – not saving enough for rainy days, bigger life events, or for a decent income in retirement.
“One-in-three families in the country have less than £1,000 in savings. This has left many people exposed during the cost-of-living crisis. Around 13 million individuals aren’t saving enough for an adequate income in retirement.
“We can address all three challenges by building on the success of pensions auto-enrolment to opt more people into both easy access and long-term saving.
“We should also offer people more flexibility over their pension pots, as other countries do, in order to help them with difficult circumstances. These reforms will improve families’ financial resilience during their working lives and into retirement too.”
Savings: essential to weathering economic shocks
Mubin Haq, CEO of the abrdn Financial Fairness Trust, added: “Britain is not a nation of savers. Too many have little to fall back on, lacking the rainy-day buffers that prevent a drama turning into a crisis. Savings are essential to weathering economic shocks. But current financial initiatives have done little to boost savings for those who need them most. Greater contributions are also needed to prevent hardship in retirement.
“Pensions auto-enrolment offers a great opportunity to provide a safety-net millions don’t currently have. This would cover the funds needed for those rainy days for when life shocks happen. And help provide a decent income at the end of our working lives.”