8th July 2016 – FCA has today released a consultation paper “Everyone Needs a Savings Buffer”.
We put the paper together because of concerns that people experiencing financial hardship and trying to repay their debts, are not able to put aside any money for a “rainy day”.
At the moment, most statements of financial position used by creditors don’t include a line item for savings – after allowing for living expenses, creditors expect any surplus income will be available to pay towards debts.
But that is not how life works. Unexpected expenses crop up for all of us. A car breaks down, an electricity bill is higher than expected, there are additional medical expenses … the range of possibilities is endless. Without a savings buffer, unexpected expenses can tip people back into worse financial hardship.
The consultation paper proposes that a savings category is included in standard income and expenditure statements used by creditors when assessing repayment capacity.
The expected result would be that consumers would be able to set aside at least some funds for a “rainy day”. This would improve their levels of financial control and resilience, providing a buffer against future financial shocks.
For the savings buffer concept to have any impact, it needs to be the “default” position, with consumers needing to opt out of saving (rather than opt in).
The consultation paper also argues that a savings buffer should be part and parcel of capacity to repay assessments for all new credit contracts (not just when re-negotiating hardship arrangements).
The principle of a savings buffer is hard to argue against, but we recognise that the devil is in the detail. For example, some people can’t afford any savings at all, some people with high levels of debt/paying high interest rates may be better off trying to reduce these rather than save, there are risks that people who cannot afford to save may feel inadequate – there are many issues to discuss.
We are very keen to get feedback about the paper, either generally or in response to the specific questions included. Comments are sought by Friday 12th August to [email protected]
FCA is also holding an invitation-only workshop on Thursday 18th August with representatives of the financial services industry, EDR schemes, regulators and government. The workshop will include a discussion on the savings buffer concept as well as how different industries can collaborate when assisting customers experiencing financial hardship and an update on how various industries are responding to family violence.
Media Contact: Fiona Guthrie, 0402 426 835