Q
20Mr.
Hoban: Picking up on local partnering, I suppose that one
of the questions that we ought to ask the potential providers, whom we
will see this afternoon, is how they would have that marketing
relationship work at a local level. It seems to be a key part of making
the scheme work and getting the participation rates up.
A point that
came out of one of the evaluations was that there was no statistically
significant increase in net wealth. It was also suggested that some
people with higher incomes were simply taking advantage of saving
gateway and the matching, and that people who had previously been
saving informally—perhaps just keeping a balance in their
current account—were saving more formally because of the saving
gateway. I
would like to ask two questions from that. First, are the eligibility
criteria in the Bill such that they will discourage people on higher
incomes from using saving gateway to maximise their returns? Secondly,
can we judge that saving gateway has worked as a product if it does not
lead to an increase in people’s net
wealth? Matthew
Wakefield: I think that the findings you are
referring to probably come from the second evaluation, so maybe I
should respond
first. When
we carried out the quantitative assessment we found that the groups
that had possibly increased their amount of savings were from the lower
income subsets—the groups that had less than approximately
£16,000 of annual income—so that conforms quite well with
what is in the Bill. We found that for those people, it was clear that
this account was resulting in more money in cash savings—which
is not surprising, this is a cash savings product. It also appears that
they were spending less than they would otherwise have done on certain
things—in particular, food eaten outside the home, which is
something that you might think is a luxury and it was not so bad that
people were cutting back on it. Maybe it is good that they found
savings from somewhere. You are right that we did not find any
significant increase in their net wealth. Those three findings are
quite messy. As those carrying out such data work will know, those
three things should have added up: if there was any real increase in
the savings coming from expenditure, then there should have been an
increase in net wealth. We did not find that statistically significant:
it may be that net wealth is too hard to measure. The evidence suggests
that there may have been some increase in savings and
net wealth, but it is hard to pin that down—there might have been
a small increase, and it is for that lower income group. I think that
that conforms quite well with what is in the Bill, and that the
criteria for restricting saving gateway to a lower income subset have
been carefully designed to discourage groups with more available
wealth—which is not new saving—from moving it into this
account. Judging
whether this account is creating new net wealth is very difficult
unless the methodologies are repeated: it is hard to know the net
wealth that that set of people would have had if they had not been
offered the account.
Brian
Pomeroy: I want to add a comment. Even to the extent
that money that goes into saving gateway accounts is currently
informally saved, there is a potential benefit. Money that is held
insecurely may be at risk and is certainly not covered by a
compensation scheme. We know that there are informal saving schemes, it
is said, involving quite large sums of money in which the money is held
by groups of friends or within a community. The extent to which those
are brought into formal schemes that are properly regulated and
protected is itself a benefit, even if there is not an increment in
total
saving. Teresa
Perchard: I want to suggest a focus not so much on
net wealth as on the economic resilience of the groups that will use
the account. We see this as being beneficial to some of the people with
multiple debt problems whom we advise. The economic crisis that caused
them to tip from managing their payments to not managing was a very
small financial shock, extra expenditure of less than 10 per cent. of
their income, a dip in their income or something such as the cost of a
funeral. We found that only 10 per cent. of our debt clients had any
sort of positive balance in a current or savings account. Only 3 per
cent of them have life insurance. The people with debt whom we are
advising do not have a rainy-day pot, a reserve to call on, should a
major item break or they have a major expenditure of even a few hundred
pounds, at which point they might need to draw on either informal or
quite expensive forms of borrowing. If any of our clients manage to
save as much as £25 a month—a huge amount for many to
find—they would ultimately have a good liquidity buffer in the
event of a future economic shock. You may see that as being wealth, but
it is actually resilience—their capability to deal with
financial shocks which are small for us, but huge for them. That is why
we support it the scheme. If people have that sort of pot set aside for
a rainy day, it can help to prevent the untold stress of future debt
problems.
Dr.
Ladyman: I want to pick up on this point because I can see
the benefit of protecting yourself against a financial shock. However,
if you hit that shock near the end of your maturity period, and are not
quite eligible for the extra money, is there a danger that you might be
tempted go into unfortunate forms of borrowing to try and preserve the
money in the account?
Teresa
Perchard: Absolutely. There are four main issues in
making this effective. The first is simplicity and ease of access,
which includes access points. The second issue relates to the
information, guidance and support provided to get account users into
the system and set them up with a budget. A lot of the services
provided
on the pilots were about helping people to budget in order to be able to
afford save. This might mean reorganising other financial commitments
and helping account users with benefit take-up, too. There are billions
of pounds of unclaimed tax credits, so let us get more money into
people’s pockets when they set up these accounts.
Thirdly,
there is the general question whether it will work—will people
be able to budget effectively through the period and achieve the end
result? The first pilot suggests that quite a lot would, but only with
a lot of information and support at the beginning and throughout. It
cannot work without that sort of service. Finally, in terms of
affordability, one of the issues we have been raising is whether
creditors who are owed money will allow people to continue to make
savings into this account, while also repaying their debts. This
relates to creditors—some of the banks—actually forgoing
an expected weekly debt repayment in order to allow their customer to
continue saving. That is important because next time people get into
difficulty, they may have to draw on the money, which would erode the
build-up of their capacity to deal with future problems. I hope that
has answered your question.
Matthew
Wakefield: May I actually come in on the point that
Dr. Ladyman raised? If I understood correctly, you said that just
before their account matures these people might go into unfortunate
forms of debt because they want to preserve their saving gateway. The
design of the account can protect people against that because the match
will be paid on the highest balance achieved during the course of your
account period. If people suddenly need their money three months before
the end of the account, they can withdraw it and still get the match on
the money paid in up to three months before the end. If account holders
understand that, they will access their money just before the account
maturity, should they need it for a rainy day. In this regard, the
account is cleverly
designed.
Q
21John
Howell: I fully accept the point about how the account can
be a hedge against shocks and how it can help with short-term
budgeting. However, one of the claimed benefits for the scheme is that
it allows and helps foster long-term planning. Did you see any of that
coming out of the pilots, and how was that evidenced?
Sharon
Collard: As we have already discussed in relation to
the first saving gateway, there was evidence of persistence in the
short term. Obviously, we could only look three to six months post
maturity, but most people had maintained money in the default savings
account. The impacts on attitude are another area that could have a
longer lasting effect. People talked about feeling that they had more
financial security, as a result of having some savings behind them.
Some people felt that they had more financial control. So, in the first
pilot, there were some quite significant changes in people’s
attitudes towards savings; it seemed to be inculcating a savings
attitude or a habit of saving. Obviously, we were not able to test it
beyond three to six months after the end of the scheme, but we would
certainly hope that those sorts of attitude would persist into the
longer term.
People felt
that they were encouraged to keep saving during the scheme, because of
the financial incentive, and they felt very positive about it. That was
aligned to a more positive attitude towards savings among the
participants, which was of statistical significance,
compared with the comparison group in that respect. There was also some
hardening of attitudes among the saving gateway participants in the use
of credit. So, while they were credit users, their attitudes towards
using credit had rather hardened into a more negative stance. So we saw
a kind of pro-savings, slightly anti-credit move over the course of the
pilot. Q
22John
Howell: Did you not see any transfer away from savings
into other long-term issues, such as insurance? The groups of people
who participated are often those who have minimal insurance for either
their homes or their
possessions. Sharon
Collard: No, that is a good point. Unfortunately, the
evaluation did not cover the take-up of other products. There was very
low cross-selling by the saving gateway provider, so we do not know
very much about which other products people might have taken
out. Teresa
Perchard: The one factor that was picked up from the
summary of the first pilot was that 32 per cent. of participants said
that they were more likely to plan for retirement. Getting people to do
something about it is another matter, obviously. But that was a group
who were on very low incomes. Getting people on higher incomes to plan
for retirement or even to engage with the issue is a challenge. The
evaluation was in 2005. There were some very positive signs of the
experience of engaging people in issues that they might not otherwise
have thought were for them. You cannot start too early on planning for
retirement, can you?
No.
Q
23Mr.
Edward Timpson (Crewe and Nantwich) (Con): I think that
you have answered the first question that I was going to pose about the
temptation for people to borrow in order to save and how we can
mitigate those circumstances. May I pick up on the second point, which
Brian touched upon, about the fourth indicator of people becoming more
financially included by becoming involved in the saving gateway scheme?
Account providers may be tempted to offer them other types of
facilities, including credit facilities and other schemes, which may
appear more attractive than the saving gateway account itself, because
of the interest rate or whatever. People who take on the saving gateway
account, who perhaps do not have the financial experience, may get
sucked into other schemes that, on the face of it, are savings;
but on the back end of that, they may get themselves into
more debt . What protection will the Bill provide to such people
to ensure that they do not end up in a worse position than before, as a
result of entering into the
scheme? Brian
Pomeroy: I am not sure to what extent protections are
in the Bill, but all of us who have looked at this and commented on it
have stressed the need for support and advice for people at two points
in time at least. The first point is when they have to decide whether
they will take up the offer of a saving gateway account, and the second
point is when the account matures. What do they do next with that
money? What do they put it into? It is vital that there should be
support. That could be done through the existing mainstream providers
of advice, such as Citizens Advice and the independent sector and the
new money guidance service. The champions initiative is something that
our taskforce has initiated in areas of high deprivation. It is
important that people have somewhere to go to ask for advice at those
two points in time at least.
Q
24Mr.
Timpson: From reading the feedback and the data that you
managed to put together in the document, it would appear that most
people were rather reticent. Although they said that they wanted
guidance, they were reticent about taking it up; they felt that they
already had the fiscal knowledge and responsibility to do it on their
own. Is that a concern if you are seeking to provide them with that
knowledge to protect themselves?
Brian
Pomeroy: Speaking personally, I think
that that would be a concern if someone who had never really had a
savings product before felt that, after a two-year period, they would
automatically have become sufficiently financially capable to go ahead
into other funds without advice. An important part of the communication
that needs to surround the launch of the saving gateway is to point out
that advice is available, and people should not hesitate to take advice
if they are not sure what to do next.
Sharon
Collard: May I just make the point that there were
two elements to the first saving gateway pilot? There was the kind of
advice that we have talked about—the partner organisations
providing advice and help to open saving gateway accounts. There was
also the community finance and learning initiative, running alongside
it, which offered things like courses in financial education, where
there was evidence of very low take-up. Those are two very different
things, and what we are talking about here is the need for advice
through mechanisms, such as money guidance and similar things, to help
people to make decisions, rather than putting them on a six-week course
or something like that. Evidence suggests that that kind of financial
education initiative was not very effective, but that does not mean
that people do not need advice and
guidance. Teresa
Perchard: You are right to identify
the risk that a customer who is dealing with a fairly large financial
institution may receive a lot of offers of other products and services,
as a result of opening a savings gateway account. Certainly, in our
experience of promoting the take-up of basic bank accounts, which are
very safe and cannot be overdrawn—all the all the banks have
been offering them—we have come across many cases where people,
perhaps people with learning disabilities or with income from benefits,
who we advised to look for one of those accounts, have gone into a
branch and come away with a full-service account and a credit card with
a limit of £2,500. Their parents just shook their heads in
horror. It
is very difficult to get large, very impersonal financial services
providers to deal with people as individuals. The protection from
over-marketing to that group is not in the Bill or in any of the
regulations, as far as I am aware. The Government will have to forge
with the providers an understanding of how that group of customers will
be treated, so that although they are included and not treated as
charity cases and have the experience of being mainstream,
well-respected customers whose custom is wanted, they are not taken
advantage of at the same time if they lack experience. That will be
difficult to achieve, but if we can get providers competing to attract
such business, they should do so on the basis that they treat those
customers properly. They should be trusted providers, not any old
provider who walks up and says that they will do it, but I am not sure
how you can regulate for that—unless you can take away the right
to
run these accounts from providers who behave badly in some way. I am not
sure whether there is a fall-back to be able to do
that. | 
