How much have you got set aside for a rainy day? According to Government research the almost half of UK adults have less than £500 in savings – hardly sufficient to cover one month’s rent in huge swathes of the country. In a bid to kick-start the seemingly lost savings culture the Government has announced plans for a ‘Help to Save’ scheme which will boost the savings of lower-income workers by 50%.
Only those in receipt of in-work benefits will be eligible for the scheme, which is worth up to £1,200 in free cash over two years. Workers must put aside £50 a month for four years to claim the maximum bonus, receiving £600 after the first two year period and a further £600 in another two years. Further details will be revealed in Wednesday’s Budget Report.
Andy Cumming, head of Advice at Close Brothers Asset Management warned that the scheme would not be enough to boost the troubling savings ratio in the UK, but it might encourage some.
“A worryingly low proportion of the UK’s population is putting away sufficient savings for a rainy day – let along long-term goals like retirement. Setting aside a monthly amount can be much more challenging for lower paid workers, with longer-term planning falling victim to short-term priorities. The creation of this scheme is not a panacea in its own right that will mean that workers on smaller incomes will suddenly be able to prioritise building their savings,” he said.
The scheme is in line with Chancellor George Osborne’s ‘Help to Buy’ policy announced in last year’s Budget. First time buyers saving into an ISA receive an extra £50 to every £200 saved – if the cash is going towards a deposit for a mortgage. The minimum cash sum to benefit from the scheme is £1,600 and the maximum the Government will contribute is £3,000 – which would be due on personal savings of £12,000.
Making the Nation More Self-reliant
The Help to Save scheme also has synergy with Osborne’s most radical reform – that of the pensions industry. In the March 2014 Budget Osborne scrapped compulsory annuity purchases, and that, coupled with the introduction of auto-enrolment in October 2012 has encouraged more people than ever before into workplace savings schemes. These moves are believed to be the prelude to the Government scrapping the State Pension in years to come – the UK consumer is being forced to become more financially self-sufficient and take charge of their own pension provision. The Government no doubt hopes that with the new Help to Save scheme it can reinvigorate the savings culture in the UK; following the successful example of pension savings schemes in US and Australia.
Carol Knight, Chief Operations Officer at TISA welcomed the scheme and said it would promote a “savings habit”.
“Combined with automatic enrolment, the Help to Save scheme starts moving the country back towards a position of individuals having financial security,” she said. “We look forward to working with the relevant trade bodies and the industry on how best to implement the scheme.”
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