Back in the day….our parents told us to always put something aside for a rainy day. But then again, back in the day, our woods, parks and forests were full of red squirrels.
But, just like the other American disease, the grey squirrel, US funded cheap finance came to our shores and the discipline of saving was overrun but the discipline of debt. Now the poor old Red is rare, and savings levels are at an all time low.
Much has been said about the removal of incentives to save, Life Assurance Premium Relief (LAPR) was removed as long ago as 1984, Gordon Brown raided our pension pots with a tax on dividends in is first budget in 1997, and continual change to savings accounts and products have just left confusion and disengagement from the every day saver. Even today, I read an article last week that stated that there was only one savings account that paid a level of interest above inflation.
Who can blame the everyday person from not bothering when it is far easier a process to borrow than to save?
The outcome of this change though is frightening. Employers are bewildered by legislation and cost when trying to do the best thing for their staff by having some kind of pension scheme, regular savings by individuals into some kind of long term retirement plan as a discipline has all but disappeared and many now are playing a wait and see game. The trouble is that by the time they realize that they haven’t got enough, its too late to do anything about it.
The state wont help. The new ‘flat rate’ proposals (£144 per week) bear no relation to affordability. If Her Majesty’s Government had to fund a scheme today that addressed all current and future liabilities (just like a private enterprise has to) the cost is estimated to be in excess of £5trillion! Compare this to the National Debt of £120billion and you can see the size of the problem. Both of these figures from the Office of National Statistics by the way…
This may sound blunt, but if anyone reading this thinks that this is sustainable and that state funded pension benefits will improve over time then they certainly live in a different world to me.
Debt is now the preferred behaviour for most of society; incentives to borrow are better marketed, easy to engage with, simpler and more accessible than ever before. And a Government of any colour that is seeking to stimulate the economy is not going to work too hard to change this, nor are any of them brave enough to address the issue, it would be far too politically damaging.
So, what incentives are required? I think only one.
A complete understanding that no one, not this Government, or any other, is going to help. Time spent seeking the optimal solution be that an ISA, a Pension or even a savings account is good time spent as long as it doesn’t defer the action.
The only incentive needed is an understanding that a retirement in poverty isn’t going to be a nice place to be.