Three new studies offer policy solutions to the savings emergency
Building up savings is a major challenge for much of the UK population throughout their lives, according to three new consumer studies.
People are struggling to prepare financially for life’s emergencies. A million middle-income, working-age adults would be unable to meet an unexpected expense costing one month’s income, says a study by the Institute for Fiscal Studies (IFS). People say they would not be able to draw on savings, borrow or ask for help.
This lack of financial resilience extends into people’s long-term savings. Over a third of people (36%) are already unlikely to be saving enough to meet their financial goals in retirement, according to think tank Phoenix Insights’ latest report.
Savers are realistic about what this may mean for their retirement prospects. Almost half of working UK adults – 46% – believe they will still be working after they reach state pension age, according to research from People’s Partnership, a workplace pension provider. Seven percent believe they will never be able to retire.
What solutions do the reports’ authors recommend to address the nation’s savings crisis?
Improve financial literacy
There’s a link between lower levels of financial literacy and lower levels of saving. Bee Boileau, a research economist at the IFS, suggested: “With low levels of financial literacy associated with having few savings, one avenue for policy could be to work to boost financial literacy levels in the population.”
Bolster auto-enrolment contribution rates
Phil Brown, director of policy at People’s Partnership said: “We know that millions are still not saving enough to maintain their current standard of living in retirement, which is why we agree with calls to increase the minimum auto-enrolment contribution rate from eight per cent to 12 per cent of earnings, as soon as we are through the cost-of-living crisis.”
Re-examine the state pension
The state pension could be a vital help, if policy interventions are managed correctly, according to Phoenix Insights. Its report, An Intergenerational Contract: policy recommendations for the future of the state pension recommends early access to the state pension for people with terminal illnesses.
The report’s second recommendation is a top-up to Universal Credit, equivalent to pension credit, accessible a year before state pension age for people on low incomes with a health condition that limits the work they can do, and carers.
The third recommendation is a sustainable work fund to support employers and workers. The fund would help workers retrain, support midlife MOTs, and offer workplace health and careers advice.
Patrick Thomson, head of research and policy at Phoenix Insights observed: “Policy interventions are needed in the years approaching state pension age so that more people aren’t dragged into financial hardship. We also need to radically change the way that we think about work, making it more sustainable and fulfilling, with better opportunities to upskill, change careers and save for a good retirement.”
