Low-earners will be left waiting longer than expected for access to a new government savings scheme, called ‘Help to Save’.
Help to Save was originally announced by the then Prime Minister David Cameron in January 2016, and was officially launched by the then Chancellor, George Osborne, in the 2016 Spring Budget.
A full rollout of the scheme has been due to be implemented “by April 2018 at the latest”, but this has now been delayed until October 2018.
According to HM Revenue and Customs (HMRC), a trial period will start from January 2018.
Sarah Coles, personal finance analyst at Hargreaves Lansdown comments: “A six-month delay in rolling out Help to Save isn’t a great endorsement of the level of planning and detail that went into the proposal when it was first announced in January 2016. However, we are where we are, and if it isn’t ready to roll out by April, it makes sense to introduce it slowly and test it along the way.”
Stephen Barclay, economic secretary to the Treasury, says: “Introducing it in this controlled way will allow HM Revenue and Customs to thoroughly test and develop it at every stage so that it provides the best customer experience possible, and a quality service for savers over the lifetime of the scheme.
“From January, HM Revenue and Customs will start to invite Working Tax Credits customers into the trial, gradually increasing their numbers, with the expectation that Universal Credit customers will start to be invited in from April. Eligible customers will still have the full five years to register for Help to Save from the end of the trial, and the overall cost of the programme to government will be the same.”
Moneywise approached HMRC on why the scheme has been delayed, but it wouldn’t add anything further to Mr Barclay’s statement.
What is Help to Save?
Help to Save is a government backed savings account. The scheme is designed for low-income workers who receive Working Tax Credits or Universal Credits to encourage them to save £50 a month and earn a 50% bonus from the government on all their contributions. Upon opening an account, a saver can make monthly contributions up to £50 for two years at which point the bonus will be paid.
The saver will then be given the opportunity to continue the scheme for a further two years. This means that someone who fully contributes over four years could earn up to £1,200 in tax-free bonuses on their savings.
The scheme is not intended to help long-term savings goals but rather to help low-income workers to build up a ‘rainy day fund’ for emergencies. The money will be instantly accessible but the government warns that withdrawing before the end could affect the size of the bonus payment. However, there is no more detail than this at the moment.
Kate Smith, head of pensions at Aegon comments: “The government has announced a number of policies aimed at the lower paid in recent years, including the Living Wage, the rapid increase in basic rate income tax threshold, increasing take-home pay and their flagship automatic enrolment policy helping to kick-start pension savings.
“One to watch is whether ‘Help to Save’ will disrupt automatic enrolment causing workers to opt-out of pension saving in return for the more flexible, but short-term savings. People’s incomes are under pressure and they have a finite amount of cash they can afford to save. They will need to balance their long-term plans against more short-term considerations.”
‘We can only hope the scheme is worth waiting for’
Ms Coles adds: “We can only hope the scheme is worth waiting for. We have seen with the Junior Isa, Lifetime Isa, Help to Buy Isa and pension savings that when you give people an incentive to save, it does encourage them to do so. The fact that this will be run by National Savings & Investments means savers have the comfort of a familiar, trusted brand, which will also help overcome hesitancy over saving.
“The key to the success of this scheme is likely to hinge on whether the attractive incentive will change people’s savings habits at a time when incomes are squeezed, inflation is biting and the target group are pretty much living hand to mouth as it is.
“For those people who don’t qualify for Help to Save, the fact there’s no specific government bonus to reward your savings habits shouldn’t stop you from building an emergency fund. We should all have three to six months’ worth of expenses tucked away in an easy-access account, so we can handle all the unexpected expenses that life throws at us.”
Ms Smith adds: “Saving in an employer’s pension scheme will still be the best deal around, as employees not only benefit from a government top-up on their own contributions, but also the employer’s contribution, every time they pay in. So currently every £50 an individual saves under automatic enrolment immediately becomes £112.50. This is set to increase as contributions rise from April 2018. The employer’s pension contribution is far more valuable than any government bonus allowing workers to build up savings at a faster pace than the new ‘Help to Save’ scheme.”