The Saving Gateway: Implications for optimal saving

Abstract

The Saving Gateway is a government saving initiative aiming to ‘kick-start a saving habit among people on lower incomes’. Funds saved in a Saving Gateway account up to a monthly limit are matched by the government after two years at a rate of £0.50 per £1 saved. In this paper, a Saving Gateway account is embedded alongside an ordinary interest-bearing account in a simple life-cycle model of saving to assess the implications of the scheme for optimal saving. Among the findings are that, for agents with access to credit, the Saving Gateway is associated with a fall in saving during the life of the account and a rise in consumption. However, the scheme increases saving by the credit-constrained. On their own, empirically plausible levels of habit formation in consumption preferences have too small an effect on saving to justify the scheme.