A report reveals that over 11 million individuals of working age in the UK do not possess a minimum of £1,000 in emergency savings. It cautions that the most impoverished households are facing difficulties in establishing financial stability due to the high cost of living.
The Resolution Foundation reported that individuals throughout the United Kingdom are confronting a “triple savings hurdle” consisting of inadequate savings, financial struggles when dealing with significant life events like family issues, and insufficient retirement funds.
Around 11.2 million individuals resided in households with savings of under £1,000, making up approximately one third of working-age households. Roughly half of these individuals were part of the poorest third of households in the UK.
According to a report by the abrdn Financial Fairness Trust, the UK is facing a deficit of £74 billion in emergency and retirement savings compared to a hypothetical country where every family has enough precautionary savings to cover at least three months’ worth of income.
The article stated that less than half of households in the UK that are of working age have savings equivalent to at least three months of income. This leaves them unprepared for unforeseen circumstances such as job loss or family issues.
Emphasizing the potential danger to families facing financial difficulties due to the rising cost of living, the report stated that individuals with lower amounts of savings were over twice as likely to rely on credit cards, overdrafts, or loans compared to those with at least £1,000 in savings.
The think tank advised the government to promote saving by increasing the contributions made by both employers and workers through automatic enrollment. This would help to improve financial stability and the suggested amount should be raised to 12%. At present, employers are required to enroll eligible workers in a pension scheme with contributions of 8%, with employers paying at least 3% and employees contributing the remaining 5%.
The Resolution Foundation proposed that both employers and employees contribute 6% towards retirement savings, with 2% going towards an easily accessible “sidecar savings” scheme of up to £1,000. This would allow for more readily available savings before retirement.
According to Molly Broome, an economist from the Resolution Foundation, we can tackle these three issues by utilizing the effectiveness of pensions auto-enrolment to include more individuals in both short-term and long-term savings.
“We must provide individuals with greater options for managing their pension funds, as is done in other nations, to aid them in challenging situations. These changes will enhance the financial stability of families throughout their careers and during retirement.”