Govt urged to 'extend and deepen' AE; flexible savings vehicles needed

The government has been urged to introduce an automatic enrolment (AE) system for the self-employed, and to work with the financial services industry to develop more flexible savings products to help people save for a rainy-day fund and their retirement.

Following its inquiry into saving trends during the pandemic, the All-Party Parliamentary Group (APPG) for Financial Resilience warned that many Brits are not putting enough aside for retirement, outlining a number of recommendations to help address this.

In particular, the APPG recommended that the government work with the financial services industry to enable the development of flexible savings products for those who may need access to a rainy-day fund but still want to save for later life.

It also urged the government to take steps to improve pension saving in under-pensioned groups, with a particular recommendation to create a new AE system for the self-employed through the tax system.

Indeed, the APPG noted that AE has been "impressive" in bringing millions more into pension saving, highlighting the "marginal" increase in opt-out rates during the pandemic as demonstration of the “fundamental strength of policies that correctly harness inertia".

In light of this, the APPG argued that the government should “extend and deepen” AE policy, adding to recent industry calls for the government to increase the default auto-enrolment figure of 8 per cent, and to reduce the age threshold of AE.

The report also suggested that changes to AE policy could help address the gender pensions gap, noting that the current AE policy, whilst applicable to all employers, excludes low-paid workers and makes no allowance for periods of caring, therefore perpetuating the gender gap in pensions.

In addition to this, although the APPG acknowledged industry concerns as to whether savers will be able to increase the amount they are saving into a pension during the current cost-of-living crisis, it argued that efforts are nonetheless needed given the foresight required to address pension issues.

The group therefore recommended that the government work with the financial services industry to enable the development of flexible savings products for those who may need access to a rainy-day fund but still want to save for later life.

It stated: "There is a real danger that individuals and families could look to make savings in their household budget by decreasing pension contributions.

“As such, looking at financial resilience from a long-term savings perspective cannot be done without looking at general pressures on people’s budgets.

"Researchers and policymakers cannot think about meeting long-term financial needs without understanding trade-offs in terms of short-term pressures, and the difficulty in balancing these priorities.

"We should therefore refer back to the idea of sidecar savings and ‘partly liquid’ vehicles that you can access in certain circumstances as ways to encourage saving without compromising an individual’s ability to meet immediate costs.”

The group suggested that these flexible savings alternatives could also be particularly appealing to the self-employed, given the potentially volatile income this group experiences.

In addition to this, the APPG also highlighted the possibility of introducing a hypothecated tax through which self-employed people would save into a pension, as recommended during the inquiry by The Association of Independent Professionals and the Self-Employed.

Commenting in the foreword of the report, APPG for Financial Resilience chair, MP Tonia Antoniazzi, commented: "When we planned the inquiry last summer, we did not anticipate that a cost-of-living crisis so deep would emerge as we concluded our sessions.

"However, the pandemic can serve as a test-case for what can be done to help those across society cope with extreme financial pressures, both in terms of income and expenditure.

"For that reason, the recommendations we make here are even more pertinent to policymaking as those pressures continue to build.

"The APPG will continue working to understand how financial insecurity can develop, and why some groups are so much more vulnerable.

"It is crucial that the government considers the winding down of the pandemic as the start of a real change in our approach to personal finances. We cannot sit back until British people see tangible improvements in their financial resilience."

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