In the Queen’s Speech, the government should introduce a Right to Save. This would require all employers to offer their staff the right to save with a credit union by a regular deduction from their pay.
It should be compulsory for all employers – including online platforms such as Uber, and Deliveroo. One of the many reasons why the cost of living crisis is set to hit so many, so hard, is that many in our country – already very heavily financially stretched – have little or no savings.
Inflation has soared to the highest it has been in 30 years and the government is forcing a huge increase in taxation on even the nation’s poorest workers, through the upcoming hike in National Insurance contributions. With unprecedented housing costs, routinely increasing travel costs and energy prices skyrocketing, the government needs not only to do much more to tackle the cost of living crisis, but also turn its attention to what else can be done to make it a little less difficult to put money aside for the proverbial rainy day.
Indeed, a survey by the FCA in February 2020 showed that 39% of adults (20.3 million people) said they could only cover their living expenses for less than three months, if they lost their main source of household income. These figures were echoed by a survey by consumer watchdog Which? and the Nationwide Building Society, who also reported that over 12 million adults don’t have the savings to fall back on if times get tough.
Requiring firms and companies to offer a payroll deduction service with a local credit union is one route to helping employees to save even a small amount regularly. Having even just a small amount saved makes it less likely those in financial difficulty would have to rely on high-cost loans such as an overdraft or credit card – or worse, a loan shark.
Although not a new concept, payroll deduction is growing in prominence as a mechanism for workers to access loans and put aside savings. Credit unions around the world have been delivering such schemes with employers for decades and new research has made clear the effectiveness of payroll deduction at encouraging greater levels of savings.
Research by the Money and Pension Service has tested the impact on household savings and financial resilience of a payroll deduction scheme operated by Leeds Credit Union.
The research was delivered with two large employers: Leeds City Council, which has operated its payroll scheme for over 33 years for its 14,500 employees, 35% of whom are already members of the credit union) and York Teaching Hospital NHS Foundation Trust (NHS York, which has been running its payroll deduction scheme for three years for its 8,630 employees, 1.5% of whom are members of the credit union). The research conducted 3,000 surveys with workers from across both employers – together with in-depth interviews with staff. Among the key findings of the research is that payroll deduction is an effective mechanism for attracting non-savers and converting them into regular savers.
The findings further suggest that payroll saving appears to help lower-income employees and importantly has a positive impact on mental health, with those contributing to a payroll saving scheme reporting being on such a scheme helped mitigate anxiety when thinking of their financial situation.
The savings and pensions crisis in the UK is a ticking time bomb that threatens our future prosperity – and the opportunity of a decent later life for far too many in our country. The government must do more to tackle this crisis, which is being exacerbated by ever-growing cost of living pressures. One simple move with clear benefits, particularly for those with little or no savings and on low incomes, is to create a Right to Save.