Up to 2.3m people in low- and moderate-income UK households have a solid financial foundation and could start investing alongside saving, according to research by Nest Insight, part of the UK’s largest DC workplace pension scheme.
The ‘Beyond The Buffer’ report showed that one in five (20 per cent) of people in low- and moderate-income households could be in a position to grow their savings through investing, if there was a targeted effort to build confidence, simplify decisions, improve advice pathways and make investing feel relevant and achievable.
The research, supported by The BlackRock Foundation, comes as the UK Government looks at a range of measures to encourage savers to invest and boost growth at household and national level, including targeted support and capping the tax free status of a Cash ISA.
The analysis finds that one in five of working age adults in low- and moderate-income households had more than £2,000 in cash savings and had no high-cost credit or arrears in May 2024, but they were not investing.
While traditional industry guidelines recommend having at least £10,000 in cash savings before investing, research shows that holding £2,000 in cash or ‘emergency’ savings is associated with a significantly lower risk of falling into debt, making it a useful indicator of short-term financial resilience, especially when combined with having no high-cost credit or arrears.
Molly Broome, research and policy lead at Nest Insight, says: “While building a buffer should remain the priority for most people in low- and moderate-income households, many could be supported to start investing and make their money work harder for them.
Behavioural and informational challenges play an important role, including risk aversion (32 per cent of non-investors with at least £2,000 in savings were unwilling to take any risk with their money, compared with 11 per cent of investors) low confidence (71 per cent of non-investors said they needed additional support before investing, compared with 41 per cent of investors), and misunderstanding inflation risk (62 per cent of investors recognised that cash loses value in real terms, compared with 47 per cent of non-investors).
Nest Insight has also previously launched a UK research trial to test the impact of a combined savings tool, often referred to as the ‘sidecar savings model’, where a liquid ‘emergency savings’ account is linked to a traditional defined contribution pension pot.