Investments

How can Open Finance help bridge the UK savings gap?

The UK savings gap is a hugely pressing issue. The amount and rate at which working people are saving money for retirement is at a significant disparity with the amount required for a desirable living standard in later life.

Deloitte projects that the savings gap in the UK will reach a staggering £350 billion by 2050. This highlights the urgency to address the issue and find effective solutions to ensure individuals are prepared for their financial future.

What can Financial Services do?

Various factors contribute to the UK savings gap; increasing living costs, consumer debt, and a lack of sufficient financial education. Encouragingly, efforts have been made by the government and financial institutions to address this issue by introducing legislative changes and initiatives aimed at promoting savings, such as auto-enrolment, increased ISA flexibility, and the Personal Savings Allowance, but there’s still more to be done.

Savings capacity depends upon people having available money. At Moneyhub, we call this available money Potential. It’s the money left after non-discretionary spend is subtracted from income.

By helping users increase their Potential we can enable them to put more money in savings, investments or their pensions.

Helping people get established

According to the FCA, over a third (34%) of UK adults have less than £1,000 in their savings. For 18-24 year olds, that figure jumps to 47%.

These shaky foundations mean that as people then move through their late twenties and into their thirties, they may struggle to build savings capacity for things like a first home. Many are renting and may have taken on debt to get through the day-to-day.

So how can Open Finance help people establish themselves financially with firm foundations to build upon? And how can it help financial services engage them?

Engagement tools to help people take control

Whilst no amount of tools can make up for chronic low income or help families who simply do not have enough money to make ends meet, most money advisors say that the key to staying in control is to monitor transactions, set and stick to budgets and avoid missing regular payments.

Our technology is designed to help people do just that. You can embed the following solutions within your own offering to help users manage their money better, and make it easy to do so:

  • Financial MOT

  • Budgets and Forecasts

  • Credit Score Improver

  • Emergency Cash Builder

  • First Home Saver

  • Benefits Finder

  • Personal Debt Manager

  • Complete Personal Financial Management App

Get in touch to discuss which solutions could work for you →

Real users, real stories, real difference

Don’t just take our word for it. Ed is a Moneyhub user and father of 3. He’s worked in hospitality, the NHS and a forklift driver, and was struggling with debts he’d built up as a younger man

He explained, “I’d built up a lot of debt on credit cards by overspending and basically not having an understanding of where my money was and simply not caring. I used to buy things I could not afford and at the end of each month I was scrabbling around for pennies”

“I really like Moneyhub’s spending budgets, in fact they were almost life changing for me. I’d miss transactions in my bank accounts and credit cards and then spend ages going back trying to work out where everything was going.”

“By creating spending categories for everything such as fuel, beer, coffees, haircuts…all sorts of things, I could work out trends using the spending and income analysis, which enabled me to compare month on month. Looking back over the year I could see what I spent on average so I used that to set budgets and then every time I got paid I was able to put aside money in my bank account knowing that everything I had left was spare money. Since then my finances have turned around completely”

From day-to-day, to planning for the future

Once Ed felt in control of his day-to-day spending, he naturally started engaging with his longer-term finances:

“I had connected my workplace pension to Moneyhub so when the pandemic started I could see my pension’s value. Every day I looked it was going down as share prices were going down. Before Moneyhub I’d never have known about my pension but because it’s so visual, seeing the graph is brilliant. In fact it surprised me just how quickly pensions can go up and it's made me want to pay in more, especially now I’ve got spare money at the end of the month”

Building financial resilience unlocks customers’ Potential

Open Finance makes it easy for people to engage with their finances where they might have felt overwhelmed before. With oversight of where money is coming in and going out, incremental changes can be made, which include putting more money aside for later life.

Open Finance also offers businesses the chance to create highly personalised customer journeys throughout their financial life, resulting in stickier customers with increased Potential, to go some way to bridging the UK savings gap.

Find out more about how our technology can help you unlock your customers’ Potential →

Open Finance drives greater transparency of pensions and investments impact

iStock-891501874_Smaller.jpg

The issues of pension engagement and the impact of investment are coming to a head with campaigns like MakeMyMoneyMatter, the need to build back better after Covid-19 and regulatory change. It is no coincidence.

More than 10 million people are contributing to workplace pensions following auto-enrolment, but engagement and contribution levels remain low. Traditional ways to engage people in later-life planning have not worked. And this matters, as the vast majority of people are at risk of lower living standards in retirement.

Bridging the engagement gap

One way to bridge the engagement gap is to talk about the things people say they care about. A range of studies, including the FCA, show people - especially younger people - are more likely to engage, save more and take some investment risk when their pensions are responsibly invested.  

 
Percentage of members willing to engage, contribute or take more risk if pension savings are responsibly invested - Data source: FCA

Percentage of members willing to engage, contribute or take more risk if pension savings are responsibly invested - Data source: FCA

 

All investment has impact, and regulators, scheme managers, providers and members are increasingly incorporating environmental, social and governance factors as part of prudent risk management. Now, schemes’ statement of investment principles have to state how they account for financially material considerations, including Environmental, Social and Governance (ESG) considerations like climate change.   

The overwhelming majority - more than 90% of master trust pension scheme members - are invested in their providers’ default fund. Default funds provide many important protections for pension members. So why not tell scheme members about the real world impact their pension contributions are having while invested for their future within the default fund? This Quietroom video shares pension savers’ positive reaction to seeing their pension is invested in housing, hospitals and renewable energy - and horror at the thought it could be funding tobacco or coal.

A recent DCIF report showed 80% of DC savers want their pension investments to do some good as well as provide them with a financial return. Younger cohorts and women are particularly interested in the impact of their money and ESG issues (Ref. 1) so there is an opportunity to have an outsized effect engaging with these groups that have often been underrepresented and underserved.

A recent DCIF report showed 80% of DC savers want their pension investments to do some good as well as provide them with a financial return.


Using technology to make it personal 

Open Banking and Open Finance are secure data-sharing frameworks that enable data from utilities companies, ESG ratings and investment fund holdings to be combined with financial data sets to support a range of propositions to resonate with people.  

While millions of people are in the same default fund, a provider could share personalised communications based around members' preferences. For example, two members invested in the same default fund could receive different digital annual statements: highlighting the amount of renewable energy generated, or tonnes of waste diverted from landfill for a member with environmental concerns, while another member in the same default hears about improvements in diverse board representation or gender pay gaps. Across millions of members, or retail investors, those same preferences could inform future proposition development around thematic default funds or retail investment funds based around the UN Sustainable Development Goals. Examples are emerging through The Big Exchange (co-founded by The Big Issue) and tickr. 

An aggregated view of someone’s personal finances is an essential part of sound financial planning. Including ESG ratings and fund holdings into this view helps informed decision-making and sound investment diversification. For example, a holistic view of pension, ISA and general investment accounts could reveal a concentration in particular sectors or firms. Sugi is the UK's first app to check the carbon impact of investments and compare investments across a range of funds and platforms to help consumers’ build a greener portfolio.

Read more about Sugi here

Read more about Sugi here

With the data capabilities in place, Open Finance enables firms to cost-effectively deliver a level of personalisation and insight to consumers previously the preserve of conversations between high-net worth individuals and their wealth managers.

Footprinting everyday spending

Companies such as Co-Go are already integrating carbon and transaction data to create a carbon footprint tracker for everyday spending. Elsewhere, integrating utilities bill data could show the real payback for a green retrofit of your home, for example.

Cost-effective technology brings transparency

For asset managers, these alternative data sets can not only inform future proposition development around thematic default funds or retail investment funds, they can also be used in equity and fixed income research. More than $30 trillion - which is more than a third of the world’s professionally-managed assets - are in ESG and impact investments. Yet, as noted in a recent Columbia Threadneedle report, ESG data has been hampered by a lack of verification as researchers have relied on voluntary disclosure in annual financial and CSR reporting. Open Banking and Open Finance could provide “alternative datasets” to help “minimise reliance on voluntary disclosure”.  

Open Finance provides transparency for customers — be they individuals or companies — and employees to align their purchasing, saving and investment choices with their values. Technology, member appetite and regulatory support together mean best in class providers are tantalisingly close to bridging the pensions engagement gap.


Hannah+Gilbert.jpg

Author

Hannah Gilbert

Hannah is a Client Director with senior industry experience in financial services, telecoms, public and not-for-profit organisations. Hannah has co-authored policy papers including “Pensions for the Next Generation: Communicating What Matters” and has consultancy experience in sustainability, responsible investment and social enterprise. With two Masters (Economics and Sustainable Tourism), Hannah is on the EMBA programme at Cass Business School and Women in FinTech Powerlist 2019.