Over 11 million people in Britain don’t have basic ‘rainy day’ savings of at least £1,000, as households with low savings are more likely to rely on credit cards, overdrafts, or borrowed money to meet daily expenses.
A report by the Resolution Foundation said that one-in-three working age families (11.2 million) don’t have basic level ‘rainy day’ savings of at least £1,000. This increases to almost half of low-income families as the cost of living crisis makes it even harder to save money for emergencies.
Some 12% revealed they had less than £100 and 5% did not have any savings at all.
Families with low savings were more than twice as likely to have used credit cards, overdrafts, or borrowed money from formal lenders in order to meet daily expenses compared to those with more than £1,000 of savings.
More than half of working-age households in the UK (51% or 13 million) did not have savings worth three months of income, in case of major problems such as unemployment, illness or relationship breakdown.
They would need to have a combined £74bn extra saved up to meet that threshold, the think tank calculated.
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The think tank said people should be able to “borrow” money out of their pension pot to cope with pre-retirement financial challenges
To help achieve this, the Resolution Foundation proposed the creation of a “sidecar savings” scheme to be set up alongside workplace pensions.
The Foundation said that people should also be able to borrow money from their pension pots. Under the pension freedoms, people have to wait until they are aged 55 to access their pots.
It also called for an increase in auto enrolment pension savings and allowing savers to borrow up to £15,000 or 20% from their pension pots to help them cope if they run into difficult circumstances. Currently, none can be drawn down without penalties until the age of 55, rising to 57 by 2028.
The authors of the report said the UK system was “unusually” strict and the Government should offer savers more flexibility, as other countries do.
In the US, savers can access their employer-sponsored retirement plan at any time. However, with tax due on the money drawn along with a 10% penalty.
New Zealand allows allow savers to dip into their pensions to buy their first home.
Molly Broome, an economist at the Resolution Foundation, said: “We can address all three challenges by building on the success of pensions auto-enrolment to opt more people into both easy access and long-term saving.
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“We should also offer people more flexibility over their pension pots, as other countries do, in order to help them with difficult circumstances. These reforms will improve families’ financial resilience during their working lives and into retirement too.”
Mubin Haq, chief executive of the Abrdn Financial Fairness Trust, which backed the study, said: “Britain is not a nation of savers.
“Too many have little to fall back on, lacking the rainy day buffers that prevent a drama turning into a crisis.”
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