More than 6m individuals have found it easier to save than normal during the pandemic through a combination of keeping their jobs, reduced debt and increased savings, a report has found.
Research from consultancy LCP, published last week (February 28), found these individuals are likely to have improved their wealth by thousands of pounds.
The research was based on Bank of England estimates of increased savings from March to November 2020.
According LCP, these ‘accidental savers’ tend to be on higher incomes, including those whose jobs allow them to work comfortably from home thereby saving costs on travel.
But a significant amount of young people have saved more due to not spending as much on holidays and eating out.
However, these accidental savings have ended up in a bank account or short-term savings account rather than being used to boost long-term savings such as pensions.
Heidi Allan, senior consultant and financial wellbeing specialist at LCP, said: “Whilst the pandemic has led to a hit on household incomes for large numbers of people, there is also a significant group of employees whose household finances have improved in recent months.
“This is an opportunity for them to put their personal finances on a firmer footing by reducing debt and increasing saving.
“Employers will have a key part to play in ensuring that workers take advantage of this opportunity and do not simply allow these increased balances to sit in current accounts and gradually drift away”.
LCP has suggested that pension providers should ‘nudge’ savers to consider one-off additional contributions, particularly in the run-up to the end of the tax-year.
The report stated: “Effective communications from providers, perhaps with special websites or helplines designed to remove the ‘hassle’ factor of pension top-ups could help to improve take-up.”
In addition, employers could explain to savers how additional contributions can be made into a workplace pension and educate members about the benefits of doing so.
Some could go even further and offer to match one-off contributions in the way that many larger firms currently match regular employee contributions up to a limit.
These individuals could also revisit their current contribution rate and decide whether to increase it for the time being.
LCP stated: “Many workers save at a ‘default rate’ and do not review this from year to year, despite changes in their circumstances.
“Employers, in partnership with workplace pension providers and advisers, could encourage people to review their current level of pension saving and consider increasing it.”
Sir Steve Webb, former pensions minister and partner at LCP, said: “There are few silver linings from the current crisis, but the emergence of a large group of accidental savers could be one of them.
“Many people who have built up balances have not yet committed them to long-term savings, and many pension schemes and providers do not make it easy for members to make one-off contributions.
“A concerted effort is needed to use this unexpected opportunity to create more of a savings culture, especially among those who may permanently benefit from reduced outgoings as a result of a switch to greater home working”.