A ‘no-lose lottery’ and a savings smartcard to make saving a ‘crime of opportunity’ are amongst the recommendations contained in a new report by published today by the Social Market Foundation think tank. The report, Savings on a shoestring: a whole new approach to savings policy, outlines how policy can build the financial resilience of people who find it hard to save.
The Social Market Foundation’s report is based on a new analysis of the Wealth and Assets survey and the Child Trust Fund administrative data. The analysis finds that the traditional approach to savings policy – trying to turn people into habitual savers – only works for the proportion of people who are inclined to save anyway. According to the research, it’s the very people least likely to respond to these incentives who are most vulnerable to financial shocks like redundancy and unemployment, so a creative new approach is needed that turns their spending impulses into savings opportunities.
“With more than one fifth of households having more debts than savings and people in the UK saving substantially less on average than their European counterparts, the scale of the savings challenge is huge,” said Jeff Masters, the report’s co-author. “As policymakers grapple with this challenge, it is essential that they adopt solutions, like a ‘no lose lottery’ and savings smartcard, which will tailor savings around people rather than the other way round and bolster the financial resilience of people who don’t much like to save.”
A ‘no lose lottery’ would work by guaranteeing people a 50p return on their £1 ticket, which would automatically form part of their savings, and the remaining 50p would go towards a prize fund. Unlike other savings lotteries like premium bonds, a no lose lottery would feature a live draw and winning numbers so people would get the anticipation and excitement of the national lottery.
A savings smartcard would be an adaptation of the Oyster card and would allow people to pay small amounts of money into a savings account but not withdraw it. People could quickly and easily divert money from bill round-ups or multibuy purchases into savings at the check-out counter at the supermarket or other shops.
The SMF also recommends:
- Improving the traditional savings policy approach by scrapping tax relief on pensions in favour of a matched savings scheme whereby for every £1 added to a pension pot, the state puts in a fixed additional amount up to a maximum contribution per year. This would be more progressive than the current system, cost-neutral to the taxpayer and more likely to encourage people to proactively save than the complicated idea of tax relief.
- Paying a portion of tax credits as a lump sum to remove the bias towards immediate consumption inherent in the current tax credits system.
- Introduce a “save more tomorrow” scheme whereby employees agree to syphon off any salary rises directly into a savings account.
- Give citizens shares in public assets like banks or roads.
Jeff Masters continued, “As households are still dealing with the aftershock of the financial crisis we desperately need creativity from policy makers, banks and businesses to help people who don’t much like to save to acquire assets. Given the scale of the challenge, a radical rethink of savings policy is needed.”
Notes to Editors:
- The Social Market Foundation (SMF) is a leading UK think tank, developing innovative ideas across a broad range of economic and social policy. It champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach. smf.jynk.net
- The report contains new empirical analysis based on the Child Trust Fund administrative data (http://www.hmrc.gov.uk/ctf/stats.htm) and the Wealth and Assets Survey (WAS) 2006/8. The WAS analysis goes beyond the original ONS analysis by isolating the independent statistical relationship between characteristics (such as income, age, gender and attitudes) and outcomes of interest (such as wealth or particular attitudes).
- Chapter 3 of the report sets the Government’s savings policy in context. The two savings policies that most closely defined Labour’s approach – the Child Trust Fund and the Savings Gateway – have been scrapped. In time, the Child Trust Fund will be replaced by Junior ISAs – similar in intent, but without state contributions that were a defining feature of the Child Trust Fund. The Savings Gateway – a savings matching policy for low income savers – was years in gestation and piloting, but was cancelled before the national rollout planned for July 2010.