Half a million households could be prevented from falling into problem debt by if they had just £1,000 in precautionary savings, according to research from debt charity StepChange.
Analysis conducted by Select Statistical Consultants showed that households with modest precautionary savings are less likely to fall into problem debt and that the protective effect is most apparent for people on lower incomes.
The charity blamed successive governments’ savings policies for failing to address the particular needs of lower income households, both in terms of the incentives to save and the way that schemes are delivered.
Therefore, it is calling on the next government to incorporate ‘rainy day’ savings into the existing pensions auto-enrolment framework.
StepChange has called for the government to set a target of every household having £1,000 saved for a rainy day, by building savings pots into the auto-enrolment framework used for pensions.
It suggested that saving under the scheme would be incentivised with government and employers agreeing to match a proportion of the amounts saved, achieved through tax relief and employers’ contributions, as is now done for pensions.
The savings pots would be retained if people moved employers or fell out of work.
Research from a previous report - based on a YouGov online survey with 4,442 UK adults in December 2013 - found that 13m people in the UK lack the savings to keep up with essential bills for just one month if their income dropped by a quarter, according to the charity’s research, with 42 per cent of people who earn less than £15,000 per year not having a month’s savings.
Mike O’Connor, chief executive of StepChange, said that governments have started to address the retirement savings crisis by making saving easy, automatic and appealing.
“Now that system is established the next government should deal with the rainy day savings crisis in the same way.”
Also included in the charity’s action plan for the next government were measures to ensure low income households can access low cost credit products; scale up free debt advice so that it reaches the 1.4m people who urgently need advice but aren’t getting it; and ensure debt solutions are fit for purpose.
Tony Stenning, chairman of The Savings and Investment Policy project and head of UK retail at BlackRock, backed the move, warning that society is rapidly approaching a tipping point at around 2035, where a generation will retire worse off than the previous one.
“Our latest analysis shows that almost one fifth (19 per cent) of Brits do not save, whilst around one-in-ten (11 per cent) just set money aside at home – under the mattress or in a money box. The figures from StepChange show that even a relatively modest sum will save hundreds of thousands from debt.
peter.walker@ft.com
