COMMITTEE FOR SOCIAL DEVELOPMENT

Report on the
Legislative Consent Motion associated with the
Savings Accounts and Health in Pregnancy Grant Bill

Departmental Correspondence

Peter McCallion Clerk to the Social Development Committee Room 412 Parliament Buildings Stormont Belfast BT4 3SW

29 November 2010

Dear Peter

You will remember that at the meeting on 25 November some Members requested a copy of the evaluation reports for the Saving Gateway scheme.

As agreed I have prepared a brief summary (Annex A) on the design and key findings of the pilots including the links to the two reports. If any Member wishes to have a hard copy of the reports please let me know.

Yours sincerely

Michael Pollock

Copy distribution

Will Haire
Barney McGahan
Tommy O’Reilly
Sharon Murdock OLC
Jim Hamilton OFMDFM
Michael Pollock
Dave Wall
Margaret Sisk
Michael McKernan
Billy Crawford
Julie Lavery
Joann Hanna

Annex A

Summary of the design and key findings of the Saving Gateway pilots

The Saving Gateway scheme was similar in design to Individual Development Accounts, which were developed in the United States and are locally-run initiatives where people’s savings are matched by local and national funds from both public and private sources.

Pilot 1 - was carried out during the period from August 2002 to November 2004.

It was carried out in five areas of England. In four areas it was run alongside the Community Finance and Learning Initiative, a Department for Education and Skills pilot aimed at bringing together services relating to financial literacy and adult learning. In these areas separate local bodies “recruited” people to open accounts and also provided training and education on financial matters. In the fifth area eligible people were notified by letter from central Government, and invited to open accounts at a local branch. The Halifax Bank was the provider of Saving Gateway accounts for all participants for the duration of the pilot.

The Personal Finance Research Centre, University of Bristol, in partnership with ECOTEC Research and Consulting, was commissioned to evaluate the Saving Gateway pilot scheme.

The evaluation was carried out over three years and the final report was published in March 2005. The report is available at

http://www.bristol.ac.uk/geography/research/pfrc/themes/psa/saving-gateway.html (this report contains 95 pages).

The key features were:

~ 1,500 Saving Gateway accounts were opened in five locations: Cambridge, Cumbria, East London, Manchester and Hull;

~ accounts were provided by the Halifax (now HBOS plc) and ran for 18 months;

~ there was a £25 per month contribution limit;

~ the maximum matchable amount was 15 months of maximum contribution limit. This meant that an individual could miss a contribution in three of the months (these were referred to as “payment holidays”) and still achieve the maximum match payment;

~ the match rate was £1 for each £1 saved and the maximum balance that could be matched was £375;

~ those eligible to open an account were of working age and:

• working less than 16 hours per week and earning less than £11,000 a year, or earning less than £15,000 a year with children or a disability; or
• receiving benefits or out of work.

The key findings were:

~ the scheme generated both new savers and new saving. For example, among savers, the number of people saving regularly quadrupled and the amount of saving doubled;

~ there was evidence that the scheme led to a change in saving behaviour with 41% of savers still saving three or more months after the pilot finished and 32% of savers saying that they were more likely to plan for retirement;

~ the scheme encouraged a conversion of informal saving (i.e. money held in cash at home) to formal saving (i.e. the saving Gateway); and

~ a high proportion of account holders (60%) agreed that saving into a Saving Gateway account had made them feel more financially secure.

Pilot 2 - was carried out during the period from March 2005 to February 2007.

This pilot was much larger in scale: there were nearly 22,000 Saving Gateway accounts in operation compared with 1,500 accounts in the first pilot. The eligibility criteria was broadened in the second pilot to include individuals aged 16 to 64 with individual earnings up to £25,000 and family earnings below £50,000 or in receipt of a main out-of – work qualifying benefit (Income Support, Jobseeker’s Allowance, incapacity Benefit or Severe Disablement Allowance).

The second pilot also had variation in how the accounts operated: like the first pilot it ran for 18 months, but it also varied by area in terms of the match-rate offered (ranging from 20p to £1 for each £1 contributed) and in terms of the monthly contribution limit (ranging from £25 a month to £125 a month). One area also offered a £50 bonus once the first £50 of matchable contributions had been paid. Alongside the financial incentive to place funds in a Saving Gateway account, the pilot also offered financial education in the form of a CD Rom, and tailored courses offered by learndirect.

The evaluation of the second pilot built on the first pilot by exploring the role of different match-rates and contribution limits and also examining the impact on a wider group of potentially eligible individuals.

The evaluation of the second pilot was carried out by Ipsos MORI and the Institute for Fiscal Studies. The report was published in May 2007 and is available at http://www.ifs.org.uk/publications/3981 (this report contains 146 pages).

The key features were:

~ over 22,000 Saving Gateway accounts were opened in six locations: the same five areas as in the first pilot plus an additional area: South Yorkshire;

~ accounts were provided by the Halifax (now HBOS plc);

~ savers were recruited by telephone, mail shots from Department for Work and Pensions benefit records and from postcode address files;

~ accounts ran for 18 months;

~ variable monthly contribution limits: £25 (three areas), £50 (two areas) and £125 (one area);

~ the maximum matchable amount was 16 months of maximum contribution limit;

~ variable match rate per £1 saved: £0.20 (two areas), £0.50 (three areas, one of which offered an additional £50 bonus payment), £1 (one area);

~ those eligible to open an account were of working age and;

• earning less than £25,000 for individuals in work;
• earning less than £50,000 for households in work; or
• out of work receiving Jobseeker’s Allowance, income Support, Incapacity benefit or Severe Disablement Allowance; and

~ participants were offered financial training with their Saving Gateway account.

The second pilot was designed to test different match rates and monthly contribution limits, the effect of an initial endowment and a range of financial education and support. The account was made available to a wider range of income groups than in the first pilot. The features of the accounts in the second pilot in each area are shown in the g=table below.

* An additional £50 bonus was paid to account holders for saving at least £50 in the scheme.

The key findings were:

~ individuals were overwhelmingly positive about the effect of matching as a simple and easily understood incentive to save;

~ it was not necessary to offer match rates as generous as pound-for-pound in order to incentivise people to save;

~ many wondered if match rate was teaching the right lessons as the rates were significantly higher than normal interest rates and might not provide much continuity for inexperienced savers to open other savings products after their Saving Gateway accounts have closed;

~ there are benefits in having an account structure for regular savings – monthly contribution limits of £25 a month were affordable for those on lower incomes, those on higher incomes were able to save more;

~ a time-limited account kick-started a saving habit among those new to saving with most savers believing that they would continue to save after the saving Gateway pilot ended;

~ the pilots let to new saving particularly among those on lower incomes and there was a positive impact on attitudes to saving especially among those new to saving. However, those on higher incomes were able to recycle existing savings;

~ there was no statistically significant evidence of an increase in overall financial wealth in five of the six pilot areas;

~ those living closer to a Halifax branch were more likely to open an account than those who lived further away;

~ savers learnt through “learning-by-doing” and welcomed support and guidance at account opening and maturity. However, voluntary opt-in to financial education did not work; and

~ there were financial inclusion benefits from extending a structured matched savings account to people on lower incomes. Many of these benefits are around formalising informal savings, promoting regular saving and getting people to engage with financial institutions for the first time.