What’s happened to the ‘squeezed middle’?
The ‘squeezed middle’ has now become the ‘precarious middle’ according to a report out this month from Donald Hirsch for the Trust. The report found that income insecurity among the middle third of the income distribution appears to have got worse since it was highlighted nearly thirty years ago.
Insecure jobs, high housing and childcare costs mean there's a one in three chance someone in the middle will be in the bottom 40% of the income distribution scale next year. Three in ten private tenants in the middle have ‘unaffordable’ rents, and rising interest rates could cause the proportion of households with unaffordable mortgages to almost double, from 10% to 19%.
Read Donald’s blog
Saving in Britain
Families across Britain face a ‘triple saving challenge’ of insufficient ‘rainy day’ savings of at least £1,000; an inability to cope financially with bigger life events like family breakdown; and too little pensions saving to provide an adequate income in retirement according to new Resolution Foundation research produced as part of a partnership with the Trust.
The report calls for auto-enrolment contributions to be gradually increased from 8 to 12 per cent, with employer and employee contributions matched at 6 per cent each.
These 12 per cent contributions should include a 2 per cent contribution into a ‘sidecar savings’ scheme of up to £1,000, with contributions above this level going into a pension pot. This would revolutionise the number of families with ‘rainy day’ savings in the same way that auto-enrolment has transformed pension saving, while also boosting people’s retirement incomes.
Making the UK’s highly inflexible pension pots more accessible during people’s working lives will also help them to cope with bigger life events or difficult circumstances. Currently, it is not possible to draw down any of your pension before the age of 55 (rising to 57 by 2028) without incurring a significant penalty, except in cases of terminal illness.
The report proposes allowing savers to borrow the lesser of £15,000 or 20 per cent of the value of their pension pots. These loans would be paid back via higher contributions directly into their pension pot at a later stage. Enabling early, restricted, and repayable, access to pensions can help families deal with pre-retirement financial challenges, say the authors.
This more flexible approach already works well in the US, where around one-in-five participants in 401(k) plans have a loan against their pension at any one time, and around 90 per cent of these loans are repaid to their own funds in full and with interest.
Read the report
Podcast: Public Spending
This month we spoke to Gemma Tetlow from the Institute for Government about spending options for whoever is in government after the general election.
Vacancy: Research Manager
Are you passionate about improving living standards? Are you an experienced social researcher? Then you might be just the right person to lead our commissioned research projects at the Trust. Apply by midnight on Monday 4th March 2024.
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