Warning issued to millions of UK households with less than £1,000 in savings
A new savings warning has been issued after it was revealed one in three (30%) working age families don’t have a basic “rainy day” pot of at least £1,000.
This would cover unexpected costs such as your car breaking down, but even bigger savings would be needed to cope with larger life events such as being made redundant, according to the Resolution Foundation. Having no savings also means households would be more likely to use credit cards, overdrafts, or borrow money.
Less than half (49%) of working age families have savings worth at least three months’ income. The Resolution Foundation now estimates that Britain has a £74billion savings shortfall. The report used a survey of more than 8,300 people by YouGov in October 2023.
The Resolution Foundation has proposed a new “sidecar savings” scheme should be set up alongside workplace pensions. A minimum of 8% must be paid into your workplace pension, unless you opt out, with you contributing 5% and your employer paying at least 3%.
The report calls for minimum contributions to be gradually increased to 12% of qualifying earnings, with employer and employee contributions equally matched at 6% each. These 12% contributions would include a 2% contribution into an easy access “sidecar savings” scheme of up to £1,000, with contributions above this level going into a pension pot.
Savvy woman fed herself for less than £1 per day using items from Tesco
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 – which left many people exposed during the cost-of-living crisis – while 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.”
Mubin Haq, CEO of the abrdn Financial Fairness Trust, said: “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.”
A Department for Work and Pensions spokesperson said: “Automatic enrolment has already helped nearly 11 million people save for their futures, with £116 billion saved in 2022. Also the number of eligible private sector low earners now saving for a pension has risen from 17% in 2012 to approaching 80% today.
“And to help those on the lowest incomes save, we offer targeted support including through our Help to Save Scheme which offers a 50% bonus on monthly deposits of up to £50 and saw use increase by over a quarter in the last year alone. We also encourage people to take advantage of the Government’s Midlife MOT offer, which helps them take stock of their finances and plan for retirement.”
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