A plan has been proposed to use auto-enrolment and the pensions system to deal with the pay day loans problem.

Hargreaves Lansdown has forged a proposal to create what it called Emergency Cash Accounts.

The firm said could be achieved at no extra cost to the savers, and with minimal disruption to the pensions system.
Tom McPhail, of Hargreaves Lansdown, said with "massive growth" in the payday lending market in recent years, many households use these lenders as their de facto cash reserve often at significant cost given the high rates of interest charged on such loans.
Research has shown some 25% of UK households have no cash reserves at all and a further 9% have reserves of less than £250.
Based on average monthly outgoings, this means that in the event of their income being interrupted, these households would be in trouble within 5 days, the firm calculated.
The Hargreaves idea would mean savers in auto-enrolment pensions get the option to use their auto-enrolment membership to create an Emergency Cash Account in parallel with their pension.

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Three models outlined by the firm were:
Model 1: The employer contributions over a limited period (e.g. 2 years) are channelled into a cash account, before then being redirected once again into pension saving
Model 2: The government tax relief on the member's contribution is diverted into a cash account for a limited period (e.g. 4 years), before then being redirected once again into a pension.
Model 3: Rather than creating a separate cash account, the pension provider could simply offer investors an alternative loan option, lending out a capped sum from their pension pot.

In all 3 options, no additional contributions would be demanded of any party involved.
The Government, employers and employees would all maintain their existing commitments in terms of contribution levels.
The use of the ECA would be entirely optional, so those employees for whom it is not necessary would be entirely unaffected by its introduction.
Investors could only be allowed to draw on their ECA after first having a consultation with a body such as The Money Advice Service or The Pensions Advice Service.

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Mr McPhail, head of pensions research at HL, said: "There is scope to build on the early success of auto-enrolment to now address a more immediate challenge in household financial planning.
"Given the success of auto-enrolment and the low opt-out rates, we believe now is the right moment to look at how the pensions industry can help to solve a financial challenge which is particularly relevant to lower income households.
"For many people, simply having a cash reserve of a few hundred pounds to draw on in an emergency, would be a huge step forwards in strengthening the country's financial resilience.
"Within 2 to 4 years, even those on modest earnings (down to £10,000 a year) could build a cash reserve of several hundred pounds, at no additional cost to themselves.
"The impact on their retirement provision would be minimal, depending on which model were adopted it would typically be less than a 2% reduction in their pay out at most."
He added: "We're not suggesting that this will work for everyone or that pensions will fix the UK's credit dependency on their own but we do think they could be part of the solution."