Silos may be great for storing corn, but are increasingly complicating the problems facing the savings, pensions and long-term care markets.
The UK has a massive savings and pensions gap, along with a vital need to find a solution to the ever-increasing cost of long-term care.
I passionately believe that these issues can be solved, if the government takes a holistic view of these interlinked problems, rather than developing solutions based on a ‘silo mentality’.
Just 16 years ago, the then government launched child trust funds (CTFs) with the objective of encouraging every child to become a saver, literally from birth. The government provided an initial bonus of either £250 or £500 and, in the nine years they were available, some 6m CTFs were started.
Unfortunately, they were a Labour initiative and in 2011 the new coalition government killed off CTFs and introduced a poor substitute, in the form of the Junior Isa.
Had they been left in place, there would probably be about 12m CTFs up and running by now. I am not suggesting that this alone would have solved the issues of savings, pensions and long-term care, but it clearly demonstrates that individuals and families can be successfully nudged to start saving early.
Incorporating this reality into government thinking and getting rid of the ‘silo mentality’ would enable a radical new savings structure to be created. One which would give people a chance to build up their savings and increase their income in retirement.
For the government, funding such a solution through incentives would be a far more beneficial use of resources than the current horrendously expensive and wasteful higher rate tax relief on pension contributions.
Why this anomaly continues to be available is a mystery, as it provides the ‘unneeded with the unnecessary’.
To bring about this kind of simplified savings, policy need not disrupt current arrangements, nor reduce the importance of good financial advice. It simply needs the government to stop thinking about these issues as separate silos and create a comprehensive and co-ordinated savings policy.
This would encourage people to do the right thing by starting their savings early, and our experience of CTFs demonstrates this can be done.
Ken Davy is chairman of SimplyBiz Group