120 research outputs found
The Child Trust Fund in the UK: Policy Challenges and Potential Responses
The United Kingdom introduced the Child Trust Fund (CTF) policy, a children’s savings policy, in 2002. a focus group study conducted on parental attitudes to the CTF (Prabhakar, 2006, 2007) identified main reasons why CTF accounts were left unopened. This paper explores different ways that non-opening of accounts might be reduced. One strategy draws upon recent developments in behavioral economics and points to different ways that the CTF may be designed. an alternative strategy emphasises the role of financial education of parents as a way of addressing their concerns and increasing the opening rates of these accounts. The paper also considers another issue raised during the focus groups, namely parental unhappiness with the treatment of older siblings denied a CTF. This is part of a broader concern about the additional help that may be needed for children from particular backgrounds
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Universal basic income and Covid 19
The Covid-19 crisis promises to be as big a shock to the UK economy as the 2007-08 financial crisis. The Office for Budget Responsibility recently published a scenario of the likely economic impact of the coronavirus shock to the economy. Making a number of assumptions, it suggested that real national income would fall by about a third in the second quarter of 2020. Public sector net borrowing would rise to about 14 per cent of national income, and this would be the highest annual deficit since the second world war.
One idea for relieving the economic effects of the crisis is to implement a universal basic income. A basic income promises: ‘regular, non-meanstested cash transfers to all residents of a political territory on an individual basis, without means-test or work requirement’. A universal basic income has five key parts, namely, that it: is regular; is paid in cash; is provided to the individual; is universal with no means test; and is unconditional with no requirement to work or seek work. Long-standing supporters of a basic income, such as Guy Standing, call for this
policy to help people cope with the economic fallout of the global pandemic.
This piece considers whether Covid-19 affects two key objections to a universal basic income among the left: adequacy and opportunity cost
Attitudes Towards the Child Trust Fund: What Do Parents Think?
The Labour government has recently introduced the Child Trust Fund. This pays all new babies a £250 or £500 capital endowment from government. This is locked into a special account until the child’s 18th birthday. Parents are key to the success of this policy as they will make many of the key decisions about savings and investment. Little is known, however, about what new parents think of this policy. This paper addresses this by providing original evidence on what parents think of the basic features of this policy; whether the Child Trust Fund will make them more likely to save; attitudes towards the responsible use of the Child Trust Fund; and whether parents would prefer money spent on different forms of assistance rather than the Child Trust Fund
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Sidecar Savings
Sidecar savings are a new policy idea to encourage saving for retirement. A sidecar account is an instant access savings account that is tied to a pension. A sidecar would allow account holders to access savings in the case of an emergency.
There are different models of sidecar accounts and these include the two account and in plan model. A two account model is being trialled in the UK. Under a two account model, a saver makes savings into a sidecar account up to a specified savings cap. Once the savings cap is reached, extra savings are then added on top of the normal pension contributions, thereby adding to pension savings. If a person withdraws money from the sidecar, then they begin saving again in the sidecar until the savings cap is reached again.
There are different arguments for sidecar savings. One set of arguments is rooted in behavioural economics and suggests that common behavioural biases means that the preferable retirement system should be one that includes savings locked in a pension and an instant access sidecar account. A different set of arguments claims that a sidecar can help certain groups overcome barriers to retirement savings caused by pressures from the cost of living.
Sidecar accounts can be placed within debates about having an adequate income in retirement. Having an adequate income in retirement means that it may be important for people to save beyond the default savings rate within automatic enrolment in a workplace pension. This seems important for particular groups such as Generation X (defined as those born between 1965 and 1980) and the self-employed.
Current challenges to sidecar savings include low take-up in the existing UK trial. Moving from an opt-in to an opt-out system for the sidecar may boost enrolment into the accounts. There are a range of other design issues that need exploring for any roll-out of sidecar savings, such as the size of the savings cap in a sidecar account
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Financial Inclusion
Broadly speaking, financial inclusion refers to the access that people have to financial services such as banking, savings, credit and insurance. There are different definitions, though.
Financial inclusion in Government policy
Financial inclusion has been a consistent and increasingly important strand of Government policy since 1997. But tensions hidden within the broad concept have shaped the direction of policy.
The term financial inclusion fell out of use during the Conservative-Liberal Democrat Coalition Government between 2010-2015 but policies nevertheless continued this agenda. Much of this centred on banking and saving.
Since then, there has also been growing attention to how financial inclusion is combined with financial capability – that is the knowledge, skills and confidence that help people to make financial decisions.
In 2017, the Government created the post of Minister for Pensions and Financial Inclusion. Since 2018, Ministers have co-chaired a Financial Inclusion Policy Forum that meets twice a year.
Financial inclusion may come to the fore given cost-of-living pressures.
Is financial inclusion a good thing?
More widely, there are competing arguments over the merits of financial inclusion as a policy focus. Supporters argue that increasing access to mainstream financial services is important for reducing a poverty premium faced by vulnerable groups. But critics argue that it undermines the welfare state and exposes people to the risks associated with financial markets
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The Gender Pension Gap
This Briefing Paper is about the gender pension gap. There is no official measure of the gender pension gap, but this is generally understood to refer to the differences in retirement outcomes for men and women. Many approaches to defining the gender pension gap refer to the difference in retirement income of men and women. Although estimates vary, the difference in retirement income between men and women is larger than the gender pay gap. Written evidence from the Trade Union Prospect to the Work and Pensions Saving for later life inquiry states that the gender pension gap is: ‘significantly larger than the gender pay gap and applies to a large (and growing) proportion of the female population’. (Written evidence from Prospect (PSL0025), 2022, at p.7).
Other analysis of the gender pension gap examines the difference in wealth in retirement.
There has been recent policy interest in steps to reduce a gender pension gap. For example, this is one of the questions asked by the Work and Pensions Saving for later life inquiry that was launched in December 2021.
The gender pension gap is much larger for private pensions than state pensions. The literature on the gender pension gap highlights three main causes of this gap.
Labour market factors. Women are more likely than men to spend time outside the labour market or be in part-time employment to undertake unpaid caring for young children or relatives. This pattern of labour market participation impacts on the gender pension gap in two ways. People do not usually contribute to private pensions in periods outside of the labour market. The greater likelihood of women to be in part-time employment also contributes to a gender pay gap and this gender pay gap then filters through to the gender pensions gap.
Demographic differences between men and women. Women tend to live longer than men and so are more in need of retirement income and to make savings last longer to avoid poverty in retirement. Another issue concerns the treatment of pensions in divorce proceedings.
Design of pension systems. One example of this refers to the design of automatic enrolment into a workplace pension in the UK. The design of automatic enrolment widens the gap between lower and higher earners in retirement and disadvantages those in second jobs.
Proposed reforms to cut the gender pension gap are directed at each of the different causes of the gender pension gap. Proposals to address the gender pension gap include the following:
Provision of affordable childcare for pre-school age children.
Make pension rights a compulsory part of divorce proceedings.
Reduce the earnings trigger under automatic enrolment in a workplace pension as more women than men tend to be excluded from this policy by the earnings trigger
How did the Welsh government manage to reform council tax in 2005?
Repeated calls have been made for council tax (CT) in the UK to be reformed. A ‘tyranny of the status quo’ suggests that politicians will avoid this because they fear a backlash from the losers of reform. This paper claims that the tyranny of the status quo is not a fixed law. The Welsh government revalued CT in 2005 but did not communicate the complexity of reform sufficiently. Reform requires greater efforts to communicate the complexity of winning and losing
Why do people opt-out or not opt-out of automatic enrolment? A focus group study of automatic enrolment into a workplace pension in the United Kingdom
Automatic enrolment (AE) into a workplace pension is an important recent development in pension policy. An important question for this policy is why do people opt-out or not opt-out of AE? This question is important for understanding the power of suggestion associated with AE as well as responding to concerns that women might face undue pressure to opt-out. This article addresses this question through a focus group study into the United Kingdom’s new AE policy. Women were more likely than men to cite lack of affordability as a reason for opting out. Lack of information also seemed important for the power of suggestion associated with AE. Further research should explore how to make AE less gender blind as well as the types of information or advice that should be provided alongside AE
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