Savings culture in UK in need of overhaul: report
Recent initiatives aimed at driving a savings culture in Britain must go further to ensure it is open to all, Steve Hughes, Policy Exchange’s head of economic and social policy, has said.
In a 61-page publication, Economists Manifesto, the London-based think-tank presented the idea of a bonus Isa and a new generation of private sector premium bonds to make saving easier, more flexible and accessible.
Mr Hughes said: “Isas, auto-enrolment and pension reforms have helped encourage people to put money aside for the future, but it is not enough and saving should be an option open to everyone, and not just the relative few.”
According to the report, only 15 per cent of households own shares and 20 per cent own premium bonds, while 64 per cent own their property outright or with a mortgage.
The bonus Isa would give people more flexibility to build up their tax-free savings pots during the course of their lifetime. Savers could also use it to roll over any unused portions of their existing Isa allowance.
The new premium bonds would help low-paid workers with no Isa and the government should allow private organisations to experiment with different behavioural nudges, lottery-like mechanisms and trade-offs between set interest rates and prizes to encourage more people to save.
The report also called for compulsory saving by ending the opt-out for auto-enrolment in private sector pensions while gradually increasing the contribution rate to 12 per cent.
Mr Hughes said: “Under the current 8 per cent rate, a worker earning £27,000 in a 40-year career would only save around 55 per cent of what they need to generate the government’s recommended target.
“A 12 per cent contribution, increased gradually and made compulsory, would achieve that target.”
In the report, Policy Exchange also said that a mass distribution of RBS and the remaining Lloyds’ shares would present a once-in-a-generation chance to spread share ownership and better align the interests of the public with the financial system.
Adviser View
Trystan Lewis, financial planner at Chester-based Griffin Wealth Management, said: “There are significant amounts of choice of investment and saving products out there; people are bombarded by choice which has partly put people off saving. Previous generations had a culture to save, today the younger generations have more of a culture to spend and see financial planning as a burden and the least of their priorities.
“The change in the saving culture is going to be a difficult journey. It’s still too early to see if recent initiatives have made a difference, but financial education from an early age is key for future governments.”
