BBA Consultation on the Future of Savings
Response from The True Potential Centre for
the Public Understanding of Finance (PUFin)
August 2014
Based at The Open University Business School, PUFin is a pioneering centre of excellence for
research and teaching related to personal finance capability. It brings together academics
with expertise in fields such as regulation, taxation, consumer attitudes, motivations and
behaviours, and social marketing. PUFin is generously supported by True Potential LLP.
Views expressed by PUFin may not reflect those of True Potential LLP.
On a number of different measures, the UK saves less than other developed countries.

In 2012, the UK showed a negative savings rate (-0.5% of GDP), compared with 4.4% for
the Euro area. In contrast, Norway, Sweden, Estonia and the Netherlands showed
savings rates of more than 10%.1

In the 2014 ING International Survey, which covered 13 European countries, 32% of
people reported not having any savings at all. In the UK, this figure was 27%, compared
with 15% in Luxembourg, 19% in the Netherlands, 23% in Austria, and 26% in France.2
It is difficult to find comparable cross-national data on the ownership of saving products. Six in ten
British households (58%) have a savings account (down from 68% in 2008/10), and 48% have an ISA
(down from 49% in 2008/10). For those with a savings account, the median value of their savings is
£4,000, while for ISA holders it is £9,000.3
At the same time, it is worth noting that current account balances held by British households have
increased: from a median of £1,000 in 2008/10 to £1,200 in 2010/12 for current accounts in credit.3
With continuing low interest rates, this could suggest that people let money accumulate in their
current account (e.g. as an emergency fund) rather than save it in an existing savings account or
bother opening a new savings account. The official statistics also do not take account of new forms
of saving and investing, such as peer-to-peer platforms, which may increase in importance over
time.
1. Why do British people save less than residents from many other countries?
Why people in the UK do not save is a complex socio-economic matter with strong linkages to
government policies. Factors that affect savings behaviour include the economic environment; the
availability of debt products to fund purchases; the availability of insurance products to cover
contingent costs; the availability of State support (e.g. health, education); and the use of pension
funds to provide for retirement income.
Arguably, in a situation where debt products (including short-term unsecured loans) are readily
available, State support robust, insurance products widely employed, income in retirement secured,
unemployment low and wage levels rising then why should households hold more that modest
savings balances to cover unevenness in household cash flows? During a period of negative real
interest rates, this logic is further reinforced.
The extent to which this situation exists in the UK is debatable. Certainly, compared to other
countries associated with higher levels of savings (e.g. Germany, Austria, Netherlands), the UK has
1
OECD (2014) National Accounts at a Glance 2014. OECD Publishing
ING (2014) ING International Survey. Beyond the crisis? An age of financial prudence and debt dilemmas
3
ONS, ‘Chapter 5: Financial Wealth, Wealth in Great Britain 2010-12’. In: Wealth in Great Britain Wave 3, 2010-12
2
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lower median household income4 and the fall in real household incomes in the UK since 2008 is welldocumented.5 But saving behavior was a concern pre-recession as well, so income is clearly only part
of the jigsaw. Indeed, while lack of money is the most commonly self-reported reason why people in
the UK do not save, there is an important distinction between genuinely having no spare money to
save and having other priorities for any spare cash.6 Survey analysis shows that 21% of the
population in 2006/08 could afford to save but were not doing so.7 While this figure may have
reduced as a result of the economic environment, nonetheless it gives some sense of the potential
for boosting UK savings.
Linked to this, many commentators have identified the UK’s ‘borrow to spend’ culture as a
significant factor that has impacted savings over time. Other countries face similar concerns, albeit
not to the same extent as the UK. With initiatives to promote lending and boost economic growth
(e.g. Help-to-Buy) the need to build up savings balances is arguably further diminished. The fall in the
real value of savings interest may also have deterred the build-up of savings – assuming that people
understand the impact of inflation on their cash savings.
2. What more could banks do to encourage customers to save?
In thinking about ways to encourage saving, it is useful to distinguish between (1) encouraging
people to start saving and (2) encouraging people who are already saving, or have a savings account,
to save or invest more, as the policy responses may be somewhat different.
There are examples of UK banks using behavioural finance principles to encourage people to develop
a savings habit, such as Lloyds Bank ‘Save the Change’. A similar initiative exists in Poland. These
type of initiatives could in particular help people to start saving by making it a ‘default’ behaviour.
Where such schemes exist, it would be helpful if banks were willing to share high-level information
about their effectiveness either publically or with the BBA (commercial sensitivity notwithstanding).
Particularly in terms of encouraging existing savers to save more, or to save regularly, higher savings
balances could be encouraged by higher interest rates, loyalty bonuses, and tiered rates for higher
savings. Yet if deposit takers remain sufficiently liquid (especially via ‘Funding-for-Lending’) there is
little or no incentive for them to pay for retail balances they do not need, or indeed to market
savings products at all. Moreover, Basel III and national capital adequacy criteria mean that the focus
of deposit takers is very much on profitability and capital ratios rather than keeping savers happy.
In this somewhat barren savings environment, making sure that people can get the best deal on
their savings is more important than ever.8 With historic low interest rates likely to continue for
some time, it is equally important that savers understand the impact of inflation on the real value of
their cash savings.
4
OECD (2014) Society at a Glance: OECD Social Indicators. OECD Publishing
Levy, S (2013) Changes in real earnings in the UK and London, 2002 to 2012. ONS
6
E Kempson and A Finney (2009) Saving in lower-income households: A review of the evidence. HM Treasury
7
Daffin, C (Ed) (2009) Wealth in Great Britain - main results from the Wealth and Assets Survey 2006-08. ONS
8
Which? (2014) The Savings Trap: How to avoid it and make savings work for consumers and providers
5
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3. Should Ministers consider ending taxation on all savings products?
The argument generally put forward for ending taxation on all saving products is one of fairness –the
money going into savings has already been taxed so why should it be taxed again?9
Whether or not ending taxation would encourage saving is less clear. Among non-savers, it is highly
unlikely that taxation is a major barrier to saving. Given the current £15,000 NISA limit, most savers
or potential savers are likely to be able to protect all their new saving from tax (provided they know
about it). A recent review found no conclusive evidence that tax-favoured savings vehicles generated
new savings, or increased overall savings, due to the lack of a counterfactual measure.10 This
suggests that further work is needed to fully understand the impact of tax policy on individual
savings behaviour across the income range.
4. The BBA has called for the creation of new work-based savings products that workers could
transfer to different employers. Would you support this and if so why?
Like workplace pensions, this idea draws on the principles of behavioural finance to ‘nudge’ people
to save. In a recent report on tackling serious debt, the Centre for Social Justice also called for
workplace savings schemes11 and a similar scheme operates in Germany. Transferability between
employers is an important feature - to reduce the risk of people having multiple small savings pots
that they lose track of, and so that employees can clearly see their savings build up over time. Any
workplace saving scheme could also look to replicate ‘Save More Tomorrow’ which has helped boost
pension saving in the US, by automatically increasing the amount saved as salaries increase.
Research cited by the CSJ indicates support among UK employers for workplace savings schemes:
one in six UK companies offer their employees access to a cash ISA savings scheme, while 41 per
cent either already offer or are considering implementing a centralised online savings management
platform.
There is however an important question about fiduciary responsibility, in terms of the accounts that
employees are ‘nudged’ into. Should, for example, employees be encouraged to save into cash
products that have negative real interest rates? If not, what are the alternatives? These are issues
that NEST faced in the development of workplace pensions, and from which any new scheme can
hopefully learn.
5. What other policies by governments and regulators could encourage more people to save?
As noted earlier, a wide range of factors affect savings behaviour – from the global economic
environment, to an individual’s personality and upbringing. It is not possible within the scope of this
response to identify all the policies that could encourage more people to save. We believe some of
the most important include:

Develop a stronger savings culture in the UK. This is not just the responsibility of
government and regulators, but also the financial services industry and others. It is an
ambitious and long-term objective – particularly as we move out of a period austerity and
money and credit start to flow again. It might include targeted social marketing through
9 See for example http://www.saveoursavers.co.uk/author/jason-riddle/the-great-savings-tax-swindle/ and
http://www.taxresearch.org.uk/Blog/2013/07/11/the-inequality-of-the-uk-tax-system/
10
T Crossley, C Emmerson, A Leicester (2012) Raising household saving. British Academy Policy Centre
11
Centre for Social Justice (2014) Restoring the Balance: Tackling problem debt
3
popular media, using ‘savings champions’. Importantly, it means ‘starting where people are’
– acknowledging that people feel it is important to live for today, but also stressing the
importance of living for tomorrow too.12

Evidence from the UK and elsewhere shows that well-targeted, clear and simple incentives
(such as bonus payments, matched savings, financial incentives for regular saving, prizebased savings accounts) are more effective than tax relief or savings interest in encouraging
people on lower incomes to save. This evidence could usefully be taken into account in the
development of any workplace savings scheme.

Pay more attention to policy interactions and unintended consequences. We believe it is
crucially important for policymakers and regulators to take a holistic view of national policy
to see how it impacts on saving and investing. What has been the real impact of credit
regulation on saving, for example? What about the impact of regulation on savings and
investment activities? What is the likely impact of workplace pensions on any new savings
scheme? Survey analysis has shown, for example, that each euro of pension wealth is
associated with a decline in non-pension wealth of between 47 and 61 per cent.13 And to
what extent are disincentives to save built into the tax and benefits system, particularly for
people on lower incomes and/or with small savings pots?

Financial education and financial capability are likely to feature in many consultation
responses. Savings habits developed at a young age often persist into adulthood, so
encouraging school-based schemes is an important element of trying to build a savings
culture. Until recently, we have lacked robust evidence about what works, or even what can
work, to increase savings. The evidence base is slowly getting better, however. As part of a
major programme led by the World Bank, for example, a large-scale financial education
initiative was carried out in nearly 900 high schools in Brazil, involving 26,000 students.
Using a randomized control trial, the evaluation showed a 1.4 percentage point increase in
savings – which is a relatively large and economically relevant effect.14 While the question of
generalizability from one evaluation remains, nonetheless there is a lot that the UK could
learn about how the Brazilian scheme was developed and implemented.
Sharon Collard, Professor of Personal Finance Capability, PUFin
Martin Upton, Director, PUFin
12
E Kempson and S Collard (2012) Developing a vision for financial inclusion
A Alessie, V Angelini, P van Santen (2011) Pension Wealth and Household Saving in Europe: Evidence from SHARELIFE.
Netspar Discussion Paper 10/2011-088
14
M Lundberg and F Mulaj (2014) Enhancing Financial Capability and Behavior. The World Bank
13
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