A savings expert has pointed to a key scheme that could help people build up their savings. One in 10 people have no cash savings at all, figures from last year from the Financial Conduct Authority suggest.
This is a worrying number given the rising cost of living means ever more people are struggling to cover their regular bills out of their regular income. Banking experts spoke to the Treasury Committee [January 28] about what measures are underway to increase financial inclusion and help more people build up savings.
Matt Bland, chief executive of the Association of British Credit Unions, spoke about the growing use of payroll savings. This is an arrangement where a portion of your salary is paid directly into a savings account.
Mr Bland said: « There is a commitment to a coalition to support the expansion of payroll savings and savings in workplaces, something that many credit unions do with great success. » He said the scheme is currently promoted as a voluntary option for employees to sign up to.
But the expert said that the system may work better if this was changed. He explained: « There’s a growing body of evidence that shows if we create an opt-out mechanism, a bit like we did with pensions, and allow for the auto enrolment of employees in payroll savings, then we can have just as transformational an effect on the savings crisis we have in this country – with a quarter of working age households having less than £100 set aside – in cash saving as we have in pensions saving.
« We recognise that asking all employers to do that in the way that we have with pensions would be a big thing but certainly a clarification of the legislative provisions for employers that wish to, would be a very positive contribution. »
Some key changes to savings are coming in from next year. From April 2027, the ISA allowance will be effectively reduced. You can currently put away up to £20,000 a year into the tax-free accounts, and this allowance can be divided as you choose between cash ISAs and stocks and shares ISAs.
But this allowance is being slashed, so you can only deposit up to £12,000 a year as you choose while the remaining £8,000 has to be used for stocks and shares accounts. Also from April 2027, the rate you pay on taxable savings growth will increase by twp percentage points across all bands.
This will lift the rate for basic rate taxpayers from 20 percent to 22 percent and for higher rate taxpayers from 40 percent to 42 percent. Those on the additional rate will see their tax rate increase from 45 percent to 47 percent.
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