Help to Save: an idea whose time has come (again)

Published on Debt & Savings

‘Support for savers’ was meant to be one of the key Budget themes. Until recently it seemed likely that the Chancellor would be announcing a radical shake-up of pension saving. But in the face of fierce of opposition from industry, the media and many backbench MPs, the Treasury has now ruled out any changes to pension tax relief in this Budget.

Any big pension reforms carry risks and inevitably a progressive, revenue neutral reform would lead to big cash losses for rich taxpayers. But as our research found, the reforms had the potential to boost the pension pots of low-to-middle earners by up to 20 per cent, so should be something the Chancellor returns to.

Fortunately, support for low earners is still on the agenda thanks to the announcement this morning of a new Help to Save scheme. This is welcome news. Our recent analysis found that over two-thirds of low to middle income households hold less than one month’s income in savings.

Now for many low earners saving substantial sums is difficult – they just do not have enough to save. Indeed, over two-in-five low-to-middle income households say they would like to save at least £10 per month but cannot afford to do so. But for others the evidence is that incentives to save do matter.

It’s this lack of incentives that the Help to Save Scheme aims to change by providing a 50 per cent government match on savings of up to £50 a month over an initial two year period.

For those of you who have been around the savings policy world for a while, the scheme announced today might sound remarkably familiar. That’s because it is. It’s a rebranded (in line with the plethora of other ‘Help to…’ schemes launched since 2010) and tweaked version of the Saving Gateway, a savings scheme that was abolished by George Osborne in June 2010 (a month before it was due to launch). His view then was that the scheme was something that “we simply cannot afford”.

The Saving Gateway scheme was one of the most thoroughly, and painstakingly slowly, tested and piloted schemes in recent history. First consulted on in April 2001, it was small-scale piloted in 2002, piloted on a much larger scale (over 22,000 accounts compared to 1,500 in the first pilot) between 2005 and 2007 and ready to go in July 2010.

The independent review of the second pilot wasn’t unequivocal in its support for the scheme but it did report that a “positive…effect on savings account balances is evident for both lower and higher income groups”. It also found that the matching system was “simple and useful”; easier to understand than interest payments and a useful tool to encourage participants to take up the habit of saving.

Help to Save mimics its predecessor by providing a 50 per cent matching rate but is more generous than the Saving Gateway in the sense that participants can save into the scheme for four years rather than two. This could see account holders accruing a savings pot of £3,600 with a government match of £1,200.

But low earners and those out of work won’t benefit from this extra generosity. The government says that 3.5 million people will be eligible to save through the scheme but that it will only be open to adults in receipt of Universal Credit with minimum household earnings equivalent to 16 hours at the new National Living Wage (equivalent to roughly £6,365 in 2017-2018) or those who are still in receipt of Working Tax Credits. However, because the scheme is open to anyone on UC individuals on earnings of up to £30,000 will also benefit – a significant change from the Saving Gateway which limited participation to those with household incomes of less than £16,040 a year.

Government support for saving for those on low-incomes has been a long time coming. It’s been 15 years since a matched savings policy was first announced. But some low-income families in the UK will certainly benefit from this scheme now so let’s hope that we aren’t still waiting for implementation in 2031.