HM Treasury – Implementation of the Help to Save
Response to the consultation
Credit unions play a crucial – and statutory – role in the promotion of savings. They are also uniquely exposed to low and middle-income markets and the provision of inclusive financial services to those without choices. We therefore believe that credit unions are ideally placed to support the successful implementation of Help to Save and to ensure it has maximum impact on those it seeks to support. It would also have significant benefits for the Government’s stated manifesto commitment of continuing to support credit unions as it would provide them with an opportunity to access new members and thereby boost their sustainability and awareness among the public
To elaborate on the role credit unions play to promote savings already, there are a number of key mechanisms which credit unions could link to Help to Save to enhance its efficacy:
- Firstly, credit unions routinely require their borrowers to make a contribution to savings alongside repayment of loans. This uses the opportunity of borrowing – generally at lower cost than alternatives – to introduce saving and therefore works with the behavioural biases of people as demonstrated by the Behavioural Economics literature. Upon completion of a loan’s repayment, members will find they have a pot of savings which in many cases they have never had before. This demonstrates their capacity to save in a powerful way. Many members will then go on contributing to saving at a greater level, redisbursing some or all of their loan repayment into savings having already overcome the inertia and self-doubt which prevents many from getting into a routine of saving in the first instance. This mechanism is widespread among credit unions and 7 credit unions have recently received the 5 Star Fairbanking Mark for their lending products, explicitly referencing this model and its benefits for long-term financial resilience.
- Secondly, many credit unions offer their services via payroll deductions. Credit unions fall into two broad categories – those that offer services exclusively to employees and those working in the community – both categories work with employers to promote their services and, in turn, the benefits of saving. Payroll deduction has the benefit – in tandem with the mechanism of saving alongside loan repayments – of further reinforcing the behavioural insights of credit unions’ role: by making loan and saving repayments as easy as possible, members are assisted to save in light of their behavioural biases against doing so.
- Finally, many credit unions support their members to save towards a particular short term goal. This, once again, links to the insights of Behavioural Economics in that the principle of saving towards an undefined “rainy day” fund is often too intangible and nebulous to successfully begin a saving habit. Instead, evidence suggests that people are more likely to begin to save towards a defined goal, thereby demonstrating to themselves their ability to save, and often leading to a continuation of saving once the goal has been achieved. The most obvious example of this is the widespread provision of Christmas Savings accounts by credit unions. ABCUL has recently undertaken a scoping exercise to see whether a national credit union Christmas Saving product may be viable, linked to retailer discounts.
Credit unions’ role in providing inclusive and affordable services to low and middle-income communities and their exposure to 1.3 million members of the British public through existing membership, is another key reason why credit unions are ideally placed to deliver the Help to Save product. Similarly, for credit unions to be supported to offer the product would be a significant boost to their growth potential and public awareness among a key segment of the lower paid, working population which is exactly aligned to the sector’s socio-economic role and market position. This would therefore support the sector’s growth alongside supporting saving thereby supporting two of the Government’s ambitions in one initiative.
We recognise the challenge that the Government faces in successfully implementing the Help to Save product given the need for national coverage and the potential for limited interest in providing the account from the commercial deposit-taking sector. However, we urge the Government to allow for a multi-provider model which would enable credit unions to participate in the scheme. This would benefit the scheme’s success given their delivery model, experience in encouraging saving and unique role in supporting saving among the target population.
We surveyed the ABCUL membership (c. 210 credit unions) on various aspects of the scheme. Of 47 respondents (c. 22% of membership), 40 (85%) said they would offer the product were it made available to them. A further 5 (11%) stated they were not sure but generally speaking this was because of concerns about administrative burden for which we elaborate suggestions for minimising costs below. Only 2 respondents (4%) said they would not want to offer the product.
This expression of appetite is further supported by the more than 80 credit unions which signed up and developed systems for the implementation of the Saving Gateway which ultimately was not implemented. Although there are many credit unions who felt let down by the last minute halting of this product, we believe if a firm commitment is provided that no such halting will recur on this occasion then the same support for the product will be forthcoming from the sector.
Question 1: Please provide any comments on the government’s proposed approach for the operation of Help to Save accounts.
In general terms it will be important – given many credit unions’ limited scale and resources – to minimise the operational and administrative burden associated with operating the account.
It is imperative that there is a real-time database of account eligibility and prior opening in order that credit unions can verify eligibility at the point of application and do not need to revise the status of an account after the fact on, for example, a monthly reporting and verification cycle. This could involve a simple mechanism through an HMRC portal whereby an NI number is used to search, first, for eligibility and, second, for whether the applicant has already opened an account elsewhere. This would prevent the need for credit unions to close Help to Save accounts after a delay for HMRC verification.
In relation to statements and access to account information, we would be keen to ensure that there is no expectation of paper monthly statements. Most credit unions would not issue statements at such frequency but will make information available online or by telephone. This should be an option to minimise costs.
Otherwise we are satisfied with the general proposed approach to account operation.
Question 2: Do you agree with the proposed principles for assessing options to implement Help to Save? Please provide any comments as appropriate.
We broadly agree with the principles for implementation. In particular we strongly support the principle of simplicity – for both account holders and providers. Similarly, we are strongly in favour of a cost-effective approach which enables all providers to efficiently provide the product.
In terms of being targeted, we repeat our call for a real-time database on eligibility in order to prevent error in account opening in particular.
Finally, in terms of accessibility, we acknowledge the challenge that the Government has in ensuring that the scheme is available nationally. However, we also strongly urge the Government to ensure that credit unions are eligible to provide the product in tandem with other, national providers. This is because while credit unions are unlikely to commit in such levels to provide full or near full coverage of the country – they have strong advantages in terms of their knowledge and experience of serving the target population. The involvement of credit unions will enable more effective engagement with these individuals and support a wider role in the product acting as a gateway to other products and services.
Question 3: The government welcomes stakeholders’ views on the proposed information and reporting requirements under the multiple provider option.
In principle we have no objection to the account reporting and information requirements set out. However, it will be important, as stated above, to ensure that there is a means of validating and registering an application to open an account at the point of application. We would not wish to see a situation where credit unions’ monthly account opening report is the only opportunity for HMRC to validate the eligibility of the account and, therefore, for a certain number to have to be retrospectively denied the account they have opened. This would be sub-optimal for all parties.
Credit unions vary in terms of their capacity to comply with reporting and other administrative requirements. However, all are in a position to comply with key regulatory reporting such as that regarding Single Customer View requirements or their annual and quarterly financial returns. There are 37 credit unions which are registered ISA account managers and each of these complies with the reporting requirements around ISA provision. Were the Help to Save reporting to align with that of ISAs, therefore, there are no reasons to think that this would exceed the capacity of credit unions. Similarly, credit unions – in growing numbers – also report information into the credit referencing system as part of their terms of access for full credit reports. There are at least 100 credit unions that comply here. We see no reason to think that the administrative and reporting requirements proposed would exceed the capacity of the sector.
Question 4: Do stakeholders agree with the government’s assessment of the option to deliver Help to Save accounts through multiple providers? Please provide additional comments as appropriate, including views on:
- interest payments
- branch access
- account transfers
Once again, we broadly agree with the considerations set out. However, we would reject the suggestion that to have a choice of provider would threaten to over complicate the scene for those who may not have full engagement with financial services. On the contrary, we believe that the experience and knowledge of credit unions in serving these groups would outstrip any downside arising from complexity of choice. Credit unions are active in reaching those who might otherwise not have mainstream financial services access and so to include them in account provision would increase the product’s impact.
We agree with the principle of cost-effectiveness. It is encouraging to see references to utilising existing systems to ensure this is the case. As far as possible the product should be designed on the administrative model already in place for ISA accounts generally.
We agree that there should be an option to pay interest returns on Help to Save accounts, however, we do not believe this should be stipulated as to do so may increase the costs of offering the account beyond what providers are able to meet.
While we appreciate that the multi-provider model would require higher costs on the part of the Government in terms of investing in new systems and processes, we also believe strongly that the involvement of credit unions would enhance the product’s success in reaching the target population.
We do not believe that there is a necessarily higher risk of fraud and error in a multi-provider model as long as there is a mechanism for ensuring a real-time accessible record of account openings to be used for verifying eligibility upon opening.
Most credit unions have some level of branch access which would allow for face-to-face interaction around account opening which would be helpful for some of the target population. We support the possibility for accounts to be transferred – indeed, they would have to be able to do so to maximise the benefits of the multi-provider model. Given the local nature of credit unions, account holders who move around the country would find difficulty servicing their legacy account otherwise. The costs and administration around this process should be kept to a minimum.
In terms of lead time, we believe it is reasonable to expect credit unions to be ready to deliver the scheme within a year provided its reporting and information requirements are broadly in line with existing products, such as ISAs.
Question 5: Do stakeholders agree with the government’s assessment of the options to deliver Help to Save accounts through either a single in-house provider or a single private sector provider? Please provide additional comments as appropriate
We are strongly of the view that an NS&I-only model would be ineffective in engaging the target population. NS&I is not a familiar organisation for many low and middle-income people. Furthermore it is impersonal and remote with no face-to-face contact and a lack of obvious customer service and support functions. While it would be very suitable for a product targeted at wealthier sections of society, we do not think it would be a well-suited vehicle for Help to Save.
Similarly, having a single provider – while adding simplicity – also mitigates some of the wider benefits of a successful Help to Save implementation which would be to act as a gateway to inclusion and access to other products and services. On the other hand, a multi-provider model would encourage eligible people to engage in making an appropriate choice and would provide them with access to a wider range of support and services.
Furthermore, while it may appear that the scheme would be less-costly and more straightforward to deliver on a single-provider model, it would also lose benefits in terms of successful and deep engagement with the target audience which, while perhaps being cheaper would not be value for money.
Question 6: The government welcomes stakeholders’ views on the detailed policy design issues set out in this section, including how best to:
- ·calculate the government bonus
- ·deliver second term Help to Save accounts
- ·ensure an appropriate rollover of funds to successor accounts
- ·permit saving above the monthly limit
- ·target eligibility on people who do not already have significant savings
Calculation of bonus
We polled our membership on how they would prefer the calculation of bonus to operate. Respondent views were broadly split between applying the bonus to the highest balance achieved and crystallising the bonus amount every 6 months. There was also support for paying the balance on the average balance and allowing re-deposits.
We believe the best solution in light of this – but also taking into account the need to drive account holder engagement with the product and to align its working with the generally annual cycle of people’s financial lives – would be to pay the bonus on the maximum balance achieved in each 6 month period and to crystallise the bonus at that period. This would then allow for withdrawals in the next 6 month period before a replenishment to achieve a new highest balance in the next 6 months.
With good reporting of information on account balances to account holders, this would allow a strong incentive to continue saving as the ‘banked’ bonus would act as a motivation to continue to saving through the next 6 month period. One further consideration here might be to consider the ability to access and withdraw bonus payments at the 12 month mark to further work with the grain of people’s behavioural biases and annual financial cycle.
Second term accounts
Our preferred option for delivering second term accounts would be for account providers to ask account holders if they wish to hold the account for a second year and, if so, to automatically roll it over into a new account.
We support the proposal for the default procedure to be for the account to roll into a new savings account. This would discourage account holders liquidating and spending accumulated savings at the point of maturity and to build a long-term savings habit on the back of the Help to Save engagement.
Permitting saving above the monthly limit
We do not believe it would be unduly burdensome to allow ‘catch-up’ deposits and this would be preferential for the purposes of encouraging savings since it would be an acknowledgement of the ‘lumpy’ incomes that often characterise the finances of lower-income households. We would note, however, that to allow this would also risk gaming of the account by some holders who are able to place the full balance in the account at the end of the period and thereby achieve the full bonus without needing to engage with the habit-forming elements of the matching mechanism.
One way of mitigating against these drawbacks may be to allow ‘catch-up’ only up to a previously-achieved balance in order to accrue new bonus by exceeding their former highest balance. This could be fairly simply achieved if the scheme were designed to reward account holders on the basis of highest balance achieved since this would then be readily available information for the account provider to use as the basis of allowing contributions to the account or not where they request to exceed the £50 monthly limit.
We do not believe it would be practical for providers to police whether or not an account applicant had savings in excess of £2,000 therefore we believe to impose such a restriction on eligibility would be unworkable. What’s more, even if it would be possible for providers to conduct such a check, we believe to discriminate in this way would be unfair to people who may have – for instance – savings as a result of a windfall of some kind but could not be described as having a savings habit. The Help to Save scheme should see itself as seeking to encourage behaviour change – i.e. to inculcate a savings habit – rather than seeking to help people to save per se. Furthermore, we believe the population of eligible claimants who have a substantial sum in savings is so small that to contort the process and add costs in order to stop a minority from accessing the scheme would do more damage to its success than it would bring benefits.
Question 7: The government welcomes stakeholders’ views on options to promote take-up and awareness of Help to Save accounts, including on the role of intermediaries and opportunities to harness insights from behavioural science.
Role of intermediaries
We agree that it will be important for the success of the scheme to work with trusted advisors and agencies that come into contact with the target population to promote and encourage participation in the scheme. This will involve some work on the part of Government to engage these supporters and to provide clear information about account eligibility and available providers.
We would particularly support the role of employers in this – in keeping with the experience of credit unions providing services via employers – as this can be a very valuable source of encouragement and support for many low income employees. Similarly, Jobcentre Plus will be a critical agency in encouraging engagement with Help to Save at the point of claiming an eligible benefit.
Financial advice and guidance
We strongly support the role of Money Advice Service and its successor in promoting Help to Save. This would be an obvious way of supporting awareness raising for a valuable initiative.
While we support the FAMR programme of work and think it will lead to valuable improvements in the framework for financial advice, we do not believe that the target audience is likely to be accessing financial advice and therefore these changes are unlikely to impact Help to Save directly.
As detailed above, credit unions have a track record of designing their products – particularly around saving – to work with the grain of people’s behavioural biases. Any credit union involvement in delivery would enable their standing practices of this sort – such as payroll deduction – to support their successful delivery of Help to Save. Key design points commented on above will support more effective behaviour forming effects:
- Crystallisation of bonus each 6 months and the option to withdraw bonus at 12 months to work with people’s generally annual financial cycle
- Allowing ‘catch-up’ deposits only where an account holder has previously had a certain balance in the account and had to withdraw it. This would avoid penalising account holders for lumpy income and expenditure which is a common aspect of their financial lives.
- Scheme promotion should be simple and straightforward and should link the scheme to saving towards a common goal – Christmas is one good motivator, as is ‘back to school’ expense and annual holiday costs.
- Link promotion to the wider benefits of accessing financial services, e.g. engaging with a credit union will give access to sources of credit and payment services, for example.
- At account maturity – whichever provider option is chosen – people should be encouraged to continue to save for instance through engaging with their local credit union.
The PDF version of this response is available to download on the right-hand side.