The Government Special Savings Incentive Scheme (SSIS) is excluding low-income households and individuals because its inflexibility ignores their particular circumstances, according to speakers at a Combat Poverty policy seminar in Dublin.
For low-income households, the minimum savings level required is too high, the duration of the scheme at five years is too long and the incentive provided is too low, the seminar on Access to Savings for Low-Income Households was told.
Other problems included the ban on the use of the SSIS accounts to access credit and the large number of low-income households that are not in the mainstream financial system and could not, for example, arrange to make payments into an SSIA through direct debit.
Combat Poverty head of research Mr Jim Walsh said the €12.70 minimum monthly contribution was too high for those on social welfare. "Savings are of relevance for low-income households but the current scheme does not cater for their financial circumstances. I am concerned about the equity implications of the scheme which will be of overwhelming benefit to middle and higher income groups," he told the seminar.
Many financial institutions were deliberately excluding low-income households by setting much higher minimum payments than were required under the scheme rules, he added.
The agency, together with the National Advisory Committee for the Money Advice and Budgeting Service, has called on the Department of Finance to initiate a special scheme to encourage low-income households to save. They have proposed a scheme with a weekly savings requirement of between €1 and €3 which would have to be saved for a 26-week period and would offer a Government top-up of €1 for every euro saved to a maximum of €305. They propose that savers in this scheme would be able to use their savings to access credit.
Mr Walsh said the higher subsidy in the low-income scheme could be justified on incentive and equity grounds while the credit element would be an attractive feature for people who would otherwise not have access to small-scale loans. Such a scheme would cost about €76 million over three years compared with an estimated cost of €1.27 billion, or almost 17 times greater, for the existing scheme, he has estimated.
In a paper contributed by Ms Elaine Kempson, from the University of Bristol, three main barriers to saving among low-income groups were identified:
how to get people to start saving;
how to formalise informal savings;
how to get people to save for longer periods.
Incentive schemes had a role to play in overcoming these barriers but needed to be part of a comprehensive approach, she suggested. She set out initiatives in Britain focusing on low-income households. These included the Savings Gateway and the Child Trust Fund. The Savings Gateway, due to be piloted next month, will have a £25 sterling (€40.5) maximum monthly saving limit with a pound-for-pound matching incentive to a maximum of £1,000 per account. Accounts will last five years. Savers will have access to their own savings but not the matching funds.
Aimed at encouraging young people to save, the Child Trust Fund involved a state payment at birth into a trust set up for the child with top-up payments at ages five, 11 and 16, adding to the amount saved by the child. Relatives could contribute to the fund to which the child could have no access until they reached 18 years.
