Saving in Britain

Resolution Foundation and abrdn Financial Fairness Trust

Ineffective Savings Accounts 

April 2024

The Government’s flagship policy to promote saving (ISAs) has around 12 million adults benefiting in 2021-22. But while the policy is well intentioned – one-in-three working-age adults live in families with savings of less than the £1,000 – it is expensive and growing in cost.  The tax relief offered through ISAs is expected to cost the Treasury £6.7 billion in 2023-24, up from £4.9 billion in 2022-23.

Furthermore, ISAs are poorly targeted. Vastly more tax-relief is given to those on higher incomes as they are more likely to have an ISA and more likely to have substantial ISA savings. In 2018-20, 1-in-2 (54 per cent) working-age families in the top 10 per cent of the income distribution had an ISA, compared to less than 1-in-5 (18 per cent) in the bottom 10 per cent. Similarly, nearly half (48 per cent) of ISA holders with incomes over £150,000 had ISA savings exceeding £50,000, whereas the vast majority (65 per cent) of ISA holders with incomes less than £10,000 had savings of less than £5,000 in their ISA.

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Increasing Savings

February 2024

Britain doesn’t save enough. For starters, many families simply don’t have enough precautionary saving – the rainy day buffers that mean a drama doesn’t turn into a crisis. Meanwhile, it is clear that pensions savings are often not enough for a good standard of living in retirement. The inevitability of retirement means the need for such ‘lifecycle’ saving is obvious and has been prioritised by policy makers. This is not least because the costs of insufficient pension saving will be borne by the state.

As a result, concerted cross-party policymaking, spanning more than two decades, has begun to address pensions adequacy, with auto-enrolment bringing behavioural insights to revolutionise the way we provide for retirement. There is, nevertheless, further to go before the majority of people are on course for an adequate retirement income.

This report argues that precautionary and pension saving goals are inextricably linked, with people making choices between consuming today, saving for precautionary purposes, and saving for retirement. Failing to address these challenges together risks unbalancing saving behaviour – solving one issue while exacerbating another. With this in mind, this report articulates a strategic vision for savings policy that considers these interactions in the round and sets out a radical agenda for change.

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