Help to Save was launched in September 2018, promising to reward low income households for saving with 50 per cent bonuses. Around 3.5 million people stood to benefit but just 2.3 per cent have taken up the offer. In this special report, Quids in! explores why consumers appear to look this gifthorse in the mouth and why people in general do not save more.
HOW IT WORKS
Help to Save is a government account that people including those on Working or Child Tax Credits and Universal Credit (UC), if they bring in less than £542.88 a month, can save into. It stays open for up to four years and on each second anniversary, a 50 per cent bonus is paid against the highest level of savings that had been stashed there. Savers can put away up to £50 a month, so a maximum of £2,400, and earn bonuses of up to £1,200. The accounts remain open even if the saver’s circumstances change and bonuses do not affect UC claims, although savings may count against the £6,000 savings threshold for new claimants. The scheme is due to close to new applicants in 2023. (See the official web page here.)
By the end of 2018, just 80,810 had taken up the scheme, leaving onlookers to wonder why people are looking this apparent gift horse in the mouth.
The scheme first has to overcome consumer reticence about savings. After all, if people wanted to do it, Help to Save wouldn’t be needed at all. But on-the-ground money advisors think there are systemic problems with the scheme that don’t match the needs of low income households.
“They could start by letting people know about it,” says Karina, tutor on Quids In’s 3 Bs money skills training in Bath. “I found out by accident and on our courses not one person knew about it.”
To access the account, savers need to set up their Government Gateway ID. “This can be very difficult for people. Just getting online and feeling like they can work the Gov.uk website is hard for many. It is not always obvious where to look and it’s geared to people with a good level of literacy and knowledge on how to navigate it. You then might have to get a password reminder over email and post in two parts that can take a few weeks. Passwords are always an issue for people who aren’t used to being online and Gateway passwords are usually long and complex, not easy to remember.
“They now have even more security where you are texted a pin code to the phone you registered with them,” says Karina. “I find many people change numbers as they may be on a pay as you go or introductory offer so this can be a real issue.”
For better or worse, however, the Government Gateway is being phased out this Spring.
Critics also worry Help to Save could shift priorities for money management from other more important issues. Martin Lewis, founder of MoneySavingExpert.com, says: “The great concern with Help to Save was that it would encourage people to save when they should instead be paying off debts, including some extremely expensive ones like payday loans.”
He welcomes the fact that bonuses are paid on the highest amount that was in the account over the two year period, even if an emergency has meant savers have had to dip into it along the way. “It's a very clever scheme and one that will work for many people. Of course though, if you have extremely expensive debts, rather than saving, it's best to try and clear those first.”
For others, pensions should be the priority. Steve Webb, a former pensions minister but now policy director for pensions and investment firm Royal London, suggested Help to Save could be a modern day mis-selling scandal. ThisIsMoney.co.uk quoted him in 2016: “Money put into a pension often attracts a matching contribution from an employer plus a tax relief contribution from the Government and can entitle you to higher tax credits.
“While both short-term and long-term savings are important, low-paid workers with spare cash should think very carefully before assuming that the Help to Save scheme is the best deal for their money. It would be unfortunate if this initiative turned into a new mis-selling scandal, with workers discovering they could have got a better deal from a pension.”
With such conflicting advice, consumers could be forgiven for being confused about the best options for a limited income. Many on the breadline are already overwhelmed with day-to-day financial challenges without contending with ‘ifs’ and ‘buts’ from advisors. When they feel they have nothing they could save anyway, the easiest option is to say: ‘It’s not for me. It’s too hard.’
Karina deploys a different tactic to inspire people to consider saving: “Some of the objections are, ‘That's not much, what’s the point?’, ‘How can I save, I need every penny?’ When you’re just making ends meet or paying off bills, it is hard to think about saving but on the 3Bs course we challenge people to ‘pay themselves first’. Paying yourself first, no matter how little and no matter what, even if it’s just 5p, can help you to take steps to think forward and planning.
“Many people are in panic mode and can't think forward they are in fight flight or freeze. By saving a little it can help your stress to lower and to change the energy. But those that try it surprise themselves.”
Help to Save does not address people’s perception of delayed gratification and waiting two years for a bonus could be a hard sell unless savers are ready to think into the future. When people live with scarcity day-to-day, or follow the common YOLO (you only live once) philosophy, little windfalls often offer more comfort than future gains. So, how many of the millions that stand to share the committed £4.2 billion of potential government investment remains to be seen.
See the Quids in! feature on Help to Save feature for social tenants, benefit claimants and low paid workers at quidsinmagazine.com here.