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Debt reckoning

You can do anything with figures to put a gloss on a situation or to make something look stupid. For example, even if Derby County had got 28 points a win, they would still have been relegated.

I was surprised that the FSA said: “From our own research, it is not clear that there are large numbers of consumers with the means to save who are not currently doing so.”

The ABI had previously told us that nine million working people were not currently saving and 3.7 million were saving too little. They estimated the savings gap at £27bn. Who is right? I think we should be told.

While welcoming most of the FSA’s interim report, it was a distribution, not, however laudable, a license to empower training organisations to provide more courses. If it is supposed to be about distribution more work is needed, including tackling the enemy of saving – debt.

Independent financial education charity Creditaction tell us: l Total UK personal debt at the end of March 2008 stood at £1,430bn. The growth rate increased to 8.7 per cent for the previous 12 months – an increase of £113bn.

  • Total secured lending on homes at the end of March 2008 stood at £1,200bn. This has increased by 9.1 per cent in the last 12 months.

  • Total consumer credit lending to individuals in March 2008 was £230bn. This has increased by 6.7 per cent in the last 12 months.

  • Total lending in March 2008 grew by £8.2bn. Secured lending grew by £6.9bn in the month. Consumer credit lending grew by £1.2bn.

  • Average household debt in the UK is £9,216 (excluding mortgages).

  • Average outstanding mortgage for the 11.8 million households who currently have mortgages now stands at £101,530.

  • The last published average student debt I saw was £14,779.

    uSwitch.com figures tell us:

  • One in three people earning between £10,000 and £20,000 a year are given credit limits of between £2,000 and £4,000 – up to 40 per cent of their salary.

  • One in five people earning less than £10,000 are given credit limits of between £2,000 and £4,000 – over 20 per cent of their salary.

    We have a debt industry advertising interest rates in the order of 30 per cent to buy white goods, holidays, cars and conservatories while the savings industry has controls on charges. Many insurance firms claimed it would take them 15 to 18 years to make any money from stakeholder pensions. Some got fed up playing that silly uncommercial game and withdrew from the market.

    Ros Altmann recently spoke at a conference I attended and highlighted the need for a sense of reality regarding pensions in the UK.

    She regularly says “We have to accept that 85 per cent of the population will never be able to save enough for a retirement lasting 30 years.”

    We have even read a former head of policy at the DWP saying the Government is sleepwalking into disaster as personal accounts are not fit for purpose. We are burying our heads in the sand, thinking that those in debt can save realistic sums for retirement. How can they? Student debt ensures even the young cannot start disciplined savings.

    Best advice may mean repayment of debt rather than investment. If the financial planning and advising professions are to have greater standards of competence and disclosure, forgive me if I think lending escapes lightly.

    There is much to be done in the whole area of debt management. It seems to me the advertising encourages debt and the lenders’ product terms keep people there.

    Challenges will lie, as ever, in increased longevity and foreseen and unforeseen economic factors. But if increased distribution is required, we should consider how debt, and its causes, mitigate against saving. Debt will not go away – the terms will ensure that.

    Len Warwick is chairman of Warwick Butchart Associates

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