The True Potential Centre for the Public Understanding of Finance (True Potential PUFin) supplied written evidence for a hard-hitting report from the House of Commons Treasury Committee on the vulnerable state of UK household finances.
The report highlights how weak productivity and wage growth and persistent low interest rates are contributing to high levels of household debt, inadequate saving both for a ‘rainy day' and retirement, poor choices in the market for pension freedoms and inter-generational inequalities.
In a robust conclusion, it states: ‘The Government and Treasury need to take full and active responsibility for helping households...The financial services regulators and guidance bodies...have a more limited mandate and policy levers. The Government should not pass the buck to them’.
This echoes the written evidence which was given to the Committee by True Potential PUFin, led by Jonquil Lowe (Senior Lecturer in Economics and Personal Finance).
The report cites True Potential PUFin’s concern that a third of households have no savings at all and lack of evidence that tax reliefs are effective in incentivising saving. The Centre supports the Committee’s view that matched savings schemes better target low-income households but remains concerned that many low-income working households simply cannot afford to save. In a welcome move, the Committee has called on the UK Government to introduce regular updating on household finances in its annual Budgets.
It draws at length on True Potential PUFin’s evidence about the way behavioural biases undermine decisions at retirement. Jonquil’s research, cited in the report, has found that people overlook and undervalue the role of annuities (products that provide a lifetime income in exchange for pension savings) in providing longevity insurance and that people underestimate their chances of surviving to later old age. The report agrees with the Centre’s view that defaults and better access to advice are important, and urges the Government to work with the regulator to explore options such as making taking guidance the default before pension savings are accessed.
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