Summary
- Citizens Advice welcomes the government’s proposals for the national rollout of the Saving Gateway scheme. The consultation paper notes “savings are important in providing people with independence throughout their lives and security if things go wrong”, yet people on low incomes often have little or no savings, meaning that they can find it difficult to cope with emergency situations or be forced to get into debt. Encouraging those without savings to start saving, and develop a savings habit, is therefore a commendable aim. Our comments in this brief submission are intended to help ensure the national rollout of the Saving Gateway scheme is as successful as possible.
- In our opinion it will be essential that the process for opening, running and outlining options at maturity are as simple as possible and are supported by on-line tools, helplines and, most critically, trusted intermediaries. Learning from the operation of the Child Trust Fund (CTF) will be useful in this regard. Citizens Advice would be keen to explore in more detail about acting as intermediaries to assist people with their Saving Gateway accounts.
- Financial capability is vital in encouraging a savings culture. Approximately 100 Citizens Advice Bureaux are now engaged in delivering financial education sessions. There would seem to be considerable scope for making use of such sessions as part of efforts to:
(i) disseminate positive messages about living generally; and
(ii) to discuss the ‘nuts and bolts’ of the Saving Gateway scheme with potential users.
- There is a strong need to ensure that people can open and use Saving Gateway accounts with ease. This means making sure that the scheme has national coverage but that it is delivered at a local level via a patchwork of multiple providers’ branch networks.
- For the Saving Gateway to be successful in fostering a savings culture among low income groups, we consider that a savings element should be introduced into debt repayment arrangements accepted by creditors. In addition, existing small savings should not be taken into account when initially formulating repayment schemes.
1. Introduction
Citizens Advice is the national body for Citizens Advice Bureaux (CABx) in England, Wales and Northern Ireland. The CAB service is a network of 430 independent advice centres providing free, confidential and impartial information, advice and advocacy from over 3,000 locations in England, Wales and Northern Ireland. Bureaux provide advice from over 3,200 outlets, including courts, prisons, GP surgeries and hospitals, probation services and prisons.
This brief response to the government consultation focuses on the key elements of the Saving Gateway proposals, namely:
- Encouraging saving;
- The need for simplicity;
- The role of intermediaries & financial capability;
- Ease of access; and
- Savings and debt management.
2. Encouraging saving
Citizens Advice has extensive, first hand knowledge of the money problems experienced by the many people who turn to us for help. Funding received from government as part of the Financial Inclusion Fund means that many more people on very low incomes and facing serious debt problems will be helped through in-depth casework.
To complement this work on resolving people’s problems with debts, we consider that much greater emphasis should be placed on encouraging people to save. As the consultation paper notes “savings are important in providing people with independence throughout their lives and security if things go wrong”, yet people on low incomes often have little or no savings, meaning that they can find it difficult to cope with emergency situations or be forced to get into debt.
Our 2006 survey of CAB debt clients, Deeper in debt, found that only 10 per cent of the sample had a positive balance in a bank or building society account and the average amount held was just £404. Though 44% had other assets, such as a vehicle or home insurance policy, in many cases the value of the assets was not realisable. Citizens Advice considers that savings should play a more central role in the Government's financial inclusion strategy.
An earlier study of CAB clients' experience of debt (In too deep, May 2003, p.63) demonstrated the importance of savings in preventing debt problems from developing:
"A high proportion of clients reported a change of circumstances involving loss of income or increased expenditure as a reason for debt. However when the actual financial effects of these changes were ascertained, in a significant proportion of cases the amount of change in income was relatively small, around 10% of annual income. This suggests strongly that for a proportion of CAB clients with debt problems the level of their commitments relative to their income was such that a relatively small change turned what were previously manageable payments into debt problems."
Citizens Advice therefore strongly welcomes the proposal to roll out the Saving Gateway scheme nationally.
3. Need for simplicity
In our opinion it will be essential that the process for opening the Saving Gateway account, running it on a day to day basis and outlining options at maturity are as simple as possible.
Complex products or procedures are likely to deter those who have little experience of financial services products. Evidence reported by bureaux about the operation of the Child Trust Fund highlights the need to simplify processes to encourage participation:
A CAB in East Sussex reported that their client received information about the Child Trust Fund but did not understand what to do with the voucher. According to the client, there were too many choices of accounts and options to choose from for someone who does not consider herself to be financially confident and for whom English is not her first language.
The need to make the Saving Gateway product easily understandable would seem to augur in favour of:
- setting the matching rate at a level that can be easily grasped. If pound-for-pound matching is deemed to be too costly then we consider that there would be great attraction in setting the rate of matching at 50 pence for every pound invested;
- allowing people to open another Saving Gateway account following the maturity of their initial account (subject to them continuing to meet eligibility requirements); and
- no restrictions on what the saved money can be spent on.
The process of matching itself, while possessing an appealing simplicity, can actually become somewhat complex to explain where withdrawals are made and ‘catch-up’ payments must be made before subsequent matches can be made. To counter such difficulties we would expect government and industry to work in collaboration with groups who have experience in communicating with financially excluded groups or those with literacy difficulties to develop simple methods to explain the process.
In addition, in order to boost participation we would suggest that the voucher and supporting materials are produced in a range of languages. At the very least, potential applicants should receive some information in their own language which directs them to sources of support and help where they can receive more detail. Where this is not the case, people may be unaware of their entitlement, as in the following case:
A CAB in Northumberland helped their client, a married man of 56 with two dependent children who is a migrant worker of Portuguese background. The client was sent vouchers for the Child Trust Fund but as the promotional literature was not available in Portuguese, the client and his wife were not aware what the vouchers were for. It was only when the bureau adviser informed them of their entitlement that they expressed an interest in opening an account.
4. The role of intermediaries & financial capability
Making the Saving Gateway account s simple as possible is clearly extremely important. Yet no matter how simple the account and the processes surrounding it, potential account holders will require some form of support and assistance to explain to them a large number of matters, including items such as:
- the purpose of the account;
- the eligibility restrictions;
- calculation of any surplus income which might be used to participate in the Saving Gateway scheme;
- whether to participate in the Saving Gateway scheme or opt to use surplus income in other ways (e.g. to pay off debt, to contribute to a ‘personal account’ for retirement saving);
- consideration of the most appropriate time to start a Saving Gateway account;
- the impact of any savings on benefit entitlement;
- the duration of the account;
- the matching process;
- what to look for when choosing a provider;
- the possibility of switching providers; and
- options on account maturity.
Citizens Advice would be keen to explore the potential to act as an intermediary to assist people with their Saving Gateway accounts with Government.
The Treasury initiative to set up a generic financial advice service, outlined by the Thoresen review on Money Guidance, includes as a key element the need to stimulate a savings culture. At a time when people need to take more responsibility for planning their future finances, help in setting up a savings regime is vital. In order that people can make the right decisions for them they will need individualized advice on their options. The Saving Gateway provides an important trigger for people to look for advice, and a new Money Guidance service will be essential in providing the support and information that is easily available in a variety of formats, including face to face for those that need it.
Obviously there will be a need for advisers to understand the product, the supporting processes and the likely issues for our clients. However, it would also seem that there is a compelling case for considering the role that financial capability education sessions could play. These are being successfully delivered by bureaux to clients and frontline workers and could disseminate positive messages about saving generally, while also covering the ‘nuts and bolts’ of the Saving Gateway scheme with potential users.
At present over 100 bureaux throughout England and Wales are now involved in financial capability work in their communities. The number has grown substantially over the last four years. Building on experience gained through delivering money advice services, these bureaux are supporting low income adults to develop the skills and confidence to budget, borrow and save with genuine confidence.
Bureaux involved in financial capability work often work closely with other delivery agencies in their communities. For example, Citizens Advice has provided grants to enable bureaux to establish 14 regional forums. These forums enable bureaux, credit unions, housing associations and other voluntary and public sector interests to exchange information, share skills and resources and develop opportunities for joint working.
Financial Capability is a long term project, as attitudes, lives and finances take time to turn round. For many, it is only when budgets and borrowing are under control that saving becomes a realistic option. Funding for financial capability tends to be short-term and too often linked to pilot schemes providing short-term fixes. More sustained programmes with long-term funding, encouraging local and national partnerships, are needed.
5. Ease of access
There is a strong need to ensure that people can open and use Saving Gateway accounts with ease. This means making sure that the scheme has national coverage but that it is delivered at a local level via a patchwork of multiple providers’ branch networks.
It would seem sensible to seek to offer the Saving Gateway account via a number of different types of financial services providers in order to enable potential account holders to choose the type which they are most comfortable with. Offering a variety of providers would also help in terms of making sure that the customer can choose a provider which has branches located nearby or in convenient places - something which was important during the second pilot when “those living close to a Halifax branch were more likely to open an account than those who lived further away, demonstrating the importance of ease of access”.
6. Savings and debt management
For the Saving Gateway to be successful in fostering a savings culture among low income groups, we consider that a savings element needs to be introduced into debt repayment arrangements accepted by creditors. In addition, existing small savings should not be taken into account when initially formulating repayment schemes.
To explain why this is so, it may be helpful to provide some detailed background on how the money advice process works. The CAB service money advice process has been in place for 30 years. It aims to preserve the client's home, fuel supplies and liberty, make them aware of their rights and responsibilities and help them make informed choices about how they deal with their debt problems. As part of this process, CAB advisers assist clients in agreeing repayment schedules with creditors.
In order to work out a repayment plan for the client, the adviser will fill in a financial statement with the client, outlining the clients essential expenditure, helping them to budget, maximise their income and indicating the amount of surplus money left over to repay their debts. This financial statement is used to negotiate repayments with their creditors.
These debt repayments are based on the amount of money left over after paying for essentials such as mortgage or rent, housekeeping, travel and fuel. There is very little flexibility allowed by the credit industry when assessing an individual's means, and so expenditure is often kept to a bare minimum. As a result, repayments are often at the limit of affordability for the debtor with the effect that payments may be missed if there is a minor or temporary change in circumstances or an increase in expenditure. For example, if the client is self employed and loses some time due to sickness, or a client needs to replace an item such as a cooker. This would mean the client would need to re-negotiate the debt each time and undermines the long term sustainability of the repayment.
To remedy this Citizens Advice has recommended that debtors should be encouraged, where possible, to save a small amount each month or week to build up a small "buffer" or "reserve". This should apply to the Saving Gateway and such savings should be seen as good practice and an allowable expense by the credit industry.
As part of this, advisers could assist clients to make small regular savings by referring them to local organisations offering the Saving Gateway account, such as Credit Unions, and advising on the benefits of savings. This would hopefully enable debt clients into longer term financial health, at the same time as sorting out the pressing debt issues.
Citizens Advice recommends the use of the Common Financial Statement (CFS) which is a Money Advice Trust and British Bankers Association initiative. The CFS is a standard format along with agreed "trigger figures". The credit industry has agreed to accept offers made by money advisers for their clients as long as discretionary spending such as housekeeping is under the agreed trigger figure. It would seem to be possible for there to be an agreed trigger figure for savings incorporated into the common financial statement to encourage debt clients to save as part of the Saving Gateway scheme or indeed more widely.
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