The savings ghetto

On a low income, saving money is a struggle, which is not made easier by the types of products available. Nic Cicutti examines the Consumer Council's call for changes

Saving while on a low income can be a painful exercise. Not only is there the problem of finding a few pounds to set aside each month, there is also the near-certain knowledge that you will be charged more by many companies for not giving them enough money to look after.

A survey by the National Consumer Council this week found that those on low incomes get the worst deal. But the NCC argues that it is not simply those on low wages who are hard-hit. Families with children are part of that group because, although their incomes may be relatively high, there is little to set aside for years at a time. Unemployment and the increasing trend towards interrupted career patterns brings new categories of people under the same umbrella.

Dwindling competition brought on by bank and building society closures limits the choice of consumers, according to the NCC.

Even where choice exists, savers tend to have to pay more for the products they buy - such as pensions and endowments. This is because the cost of collecting their relatively smaller sums of money means that companies specialising in the low-savings market are forced to charge more.

Another feature of low incomes is that it becomes impossible to meet the cost of using independent financial advisers.

This in turn means that it is much more difficult to obtain impartial advice when it comes to choosing increasingly complicated and elaborate financial products.

The NCC report calls for high street banks to work even harder to recruit young customers. It also wants National Savings, the government agency, to fill some of the gaps in the savings market by providing, for example, cheap pensions schemes.

Financial training for young people, whether at school or when they start work, should also be encouraged while credit unions, community-based savings and loans schemes which help local people should also receive more encouragement.

The NCC wants independent financial advisers to offer a cheap, low-fee service, where clients could have a simple session outlining the available options, without selling being involved. Financial regulators, including the Personal Investment Authority, should also do their job in making companies publicise their lower-charge products more.

A key NCC call is that of reforming National Savings, so that its emphasis on tax-free products is amended to one where the promotion of more competitive interest rates becomes more important.

Finally, the NCC also demands that the Government - which has indicated its willingness to raise savings limits in the granting of tax incentives to those prepared to take out long-term care - be prepared to do the same in other areas of welfare benefits

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