Parliamentary Briefing: Saving Gateway Accounts Bill, House of Lords Committee Stage, April 2009

Background: the Equality and Human Rights Commission

The Equality and Human Rights Commission was established on the 1st October 2007 and is working to eliminate discrimination, reduce inequality, protect human rights and to build good relations, ensuring that everyone has a fair chance to participate in society.

The Commission brings together the work of the three previous equality commissions The Equal Opportunities Commission (EOC), the Commission for Racial Equality (CRE) and the Disability Rights Commission (DRC) and also takes on responsibility for the other aspects of equality: age, sexual orientation and religion or belief, as well as human rights.

The Commission is a non-departmental public body (NDPB) established under the Equality Act 2006 – accountable for its public funds, but independent of Government.

What is the Savings Gateway?

  • A cash saving scheme for working age people on lower incomes
  • Government will contribute 50p for each pound saved by the individual, paid into the account at the end of the 2 year life of the account
  • Savers will be able to access the money that they have saved at any point during the life of the account
  • The Government matching calculation will be based on the highest account balance that has been in the account at any point within the 2 year period. For example, if an individual had saved up to £200 but then withdrawn all or part of it they would still get the Government contribution of £100 at the end of the 2 year period
  • The maximum monthly deposit from a saver into an account will be set at £25. If someone were to save consistently for the full two year period, at the maximum of £25 per month, they would build up £600 in savings and would then receive £300 from the Government, a total of £900 tax free savings
  • An individual can only ever take out one Savings Gateway account
  • Account holders will be able to choose what to do with the amount saved
  • The intention is that accounts will be available through a range of banks, building societies and credit unions as well as the Post Office and perhaps other retail outlets.

Who will be able to save?

Individuals will be eligible for Saving Gateway accounts if they are entitled to:

  • Income Support
  • Incapacity Benefit or Employment and Support Allowance
  • Severe Disablement Allowance
  • Jobseeker's Allowance
  • Working Tax Credit or  Child Tax Credit (with income below a specified level)

The Commission welcomes the Saving Gateway Accounts Bill 2009. The "Poverty Premium" affects the least well off in our communities. People who have no savings and low income are trapped in a cycle of high cost borrowing as they have no buffer when a financial emergency comes along. They have to resort to borrowing money, sometimes only small amounts, from high rate interest loan providers, sometimes from loan sharks. The people who can least afford to pay back high interest loans are the very people who have to take them out.

For instance a washing machine bought from a well known high street retailer, perhaps on interest-free credit could cost around £330. Bought from a sub-prime rental purchase shop it could cost an individual over £600.  

The ability to save, even a small amount, could be a crucial step towards getting out of this financially insecure state. The Government estimates that eight million people will be eligible to benefit from 2010 onwards.

The benefits

  • Kick-starts a savings habit for a group of people who have not saved before, this could be their first experience of a saving product and could lead to greater financial awareness, interaction and confidence in making other financial decisions
  • In the current economic climate the Governments 50% match means that there will be no potential for fluctuating interest rates to affect the outcome
  • Potential savers know that they can have access to their savings at any time, their money is not locked away should they need it

Eligibility should be extended to include:

Those over state pension age

Eligibility is via benefit and tax credit receipt, but currently all relevant benefits are working age benefits, and very few people over state pension age are likely to be in receipt of Tax Credits. Individuals over state pension age will be unlikely to be eligible.

We appreciate the Minister's comments on this at second reading, and the Commission very much welcomes all of the forthcoming pension reforms, including the rolling out of the proposed national savings scheme, Personal Accounts. These reforms will bring real benefits to pension income by improving both eligibility for a full basic state pension and second state pension  and also giving individuals the potential to really improve private pension saving going forward.

However, these improvements, in the main, will not benefit current pensioners and we believe that extending the Savings Gateway to include people on Pension Credit, particularly those on Guarantee Credit only, could help them to improve their financial situation. They, like the people on working age benefits, have a limited income, and are just as susceptible to income shocks, but are much less likely to have the opportunity of working in the future to supplement their income or build up some savings as a buffer against future financial emergencies. They could face many years of living on a limited budget.

Putting away perhaps £5 a week for 2 years, saving £320 themselves and then receiving £160 tax free from the Government would give them £480 that they would have safely tucked away in a bank account for emergencies, such as needing to buy a new washing machine. Even a £2 per week saving would mean savings after 2 years of a total of £312.

To introduce a new savings product which effectively has an upper age limit, seems to contradict the very welcome proposed measures in the forthcoming Equality Bill to end age discrimination in the provision of goods, including financial services.

People claiming Carer's Allowance

We are extremely supportive of the Minister's comments regarding the extension of eligibility for the Savings Gateway to recipients of carer's allowance, opening up these accounts to a further 300,000 carers. 

Recent research carried out by Carer's UK has found that many Carer's are living in poverty. Carer's Allowance is the lowest of any income replacement benefits, and many carers receive Carers Allowance for a long period. Living on a low income for so long makes it very difficult to save. For the same reasons given above for people on Pension Credit, we believe that this group of people should be given every opportunity to improve their future financial circumstances by receiving help with their savings,  however small the amount they are able to save.

Supporting individuals

We welcome the Government's acknowledgement that potential savers will need tailored help and support to decide whether or not saving is right for them. Their commitment to engaging with a range of organisations to design and deliver this support is both sensible and helpful. It is crucial that the information available is simple and easy to understand, for some people in the target group this will be their first experience of a saving product and if successful for them could well lead to greater financial awareness and confidence in making other financial decisions.

Savings Gateway should have strong links with the Money Guidance initiative, encouraging those eligible for the Savings Gateway to participate in Money Guidance, and using Money guidance to  explain the Savings Gateway initiative.

Last updated: 06 May 2016