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Keith Richards: How do we create a savings culture?


There has been much focus and comment regarding the Chancellor’s retirement revolution but less on the potential to influence a positive savings culture in general.

Welcomed by the general public and commentators alike, the Budget could also be viewed as a major stroke of political genius, given the potential short and long-term rewards for the Government.

Providing greater freedom and choice for consumers at retirement is a positive step forward despite the risk of potential unintended consequences.

The view that many of the 400,000 or so people retiring after 2015 will simply drawdown their hard earned pension pot to buy a Lamborghini is frankly ridiculous, if for no other reason that they only manufacture around 1,700 cars a year.

In all seriousness, the likelihood that the majority will ignore the need to generate income throughout their retirement is reactionary. A greater focus may lead to increased contributions and future generations should also be more disposed to save for their future too. After all, if they really want a Lamborghini, they will need a sizeable pension pot.

We should not underestimate that this marks a milestone on the road to changing public attitudes towards savings in general. The accompanying increase in the Isa allowance was also very welcome.

According to OECD data for 2012, the UK has one of the lowest savings ratios amongst the leading developed nations. France tops the table with 15.8 per cent. We sit in 13th place on 5.4 per cent, just .2 per cent ahead of the Slovak Republic.

Past governments allowed the savings culture to be replaced by one of borrow/spend. And increased regulation made it significantly tougher to save.

At last we are seeing Government intervention that could begin to reverse that trend, helping to rebuild consumer confidence in the personal financial sector and elevating the value and importance of professional advice. 

Keith Richards is chief executive at the Personal Finance Society 



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. You can walk into a bank or even worse a pay day lender and ask to borrow money. The transaction can be completed in a few minutes, you’re in debt and have less money to spend but you are an adult and deemed capable of making that decision. Now you want to save £100 a month. You’ll have to give loads of information and be given a mountain of paperwork before you can proceed. It’s a unintended consequence of regulation, it has made it easier to borrow than save. Absolute madness.

  2. Rt Hon Sir Arthur Streeb-Greebling 12th May 2014 at 8:06 pm

    What does Mick have to say Keith?

  3. Julian Stevens 13th May 2014 at 10:00 am

    Well observed TJ (or should that be JT?). As I understand it, you can even arrange an unsecured loan with an extortionate rate of interest over the phone or online ~ no (surely relevant) questions asked about affordability, ATR or CFL. Maybe this will change if the FCA really sinks its teeth into regulating unsecured borrowing (from all sources), starting with the imposition of a cap relative to nett income, but it’ll probably take years of consultations and expensive fannying about. Compare that with the rigmarole of obtaining a loan secured against bricks and mortar, now, thanks to the MMR, even more of an obstacle course.

    The FCA, or at least certain people within or connected with it (one notable exception being Clive Adamson), admit that excessive regulation and the costs of complying with it, not to mention the time and masses of paperwork, are deterrents to ordinary people seeking advice on what best to do with whatever positive margin they may have in their monthly budget.

    There’s talk, of course (there’s always talk, talk, talk), about a framework for simplified advice, but the powers that be just don’t know how to deliver it without, effectively, having to admit that much of the prescribed process for the provision of full advice is totally, indeed ludicrously OTT as a result of the regulator’s maniacal pursuit of perfect consumer outcomes. So what hope can there be for the young couple in their 20s with a savings budget of £100 p.m.? They certainly can’t afford to write a cheque for £500 for a report and recommendations fee. Raising the ISA input allowance and abolishing the annuity trap are all very well but of what value are such measures to the younger generation (and we all know that starting early is of paramount importance) if they can’t afford to get on the first rung of the savings ladder?

    And what are APFA’s proposals, or (sorry to have to ask, Keith) those of the PFS for a simplified advice framework?

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