An unprecedented grouping of leaders from across the UK financial services industry are warning of an impending consumer finance crisis unless action is taken to change people’s attitudes to saving.
The industry grouping, which has created the Savings and Investment Policy project1, (‘TSIP’, ‘the Project’), has this week published a review entitled, ‘Our Financial Future’, setting out how the UK is not only failing to save enough for day-to-day needs, but that it will reach a tipping point in 2035 when those entering retirement will be increasingly less-well-off than earlier generations. As a result, people will face substantially reduced living standards for the remainder of their retired lives.
However, the Savings and Investment Policy project believes there is a once in a generation opportunity to change people’s attitudes to saving and develop long-term policies to avert this looming social and economic crisis. The changes in the recent Budget give savers greater flexibility and choice. Those freedoms are very welcome but they do not address the fundamental issue that people are not saving enough money, early enough to fund their future.
This is the first time that the financial services industry has spoken with a single voice and worked with organisations that represent the consumers’ interests to create solutions that meet their needs and aspirations for the future. It highlights the significance of the issue and the belief that urgent action is required.
The Project, which is being managed by TISA2 (the financial services industry membership association), wants to stimulate discussion and debate about the role saving plays in securing people’s financial future and also to underline how saving ensures growth, stability and prosperity for the UK as a whole. It will develop strategic proposals for new savings and investments policies to help rebuild consumer confidence and trust in long term savings. Its findings, conclusions and recommendations will be used to work with Government, key political parties, consumer groups and regulators to present a consistent view.
The Project seeks to develop strategic proposals on how to enhance consumer financial well-being and will be ready to share these across the political parties by September 2014. It will then start looking at how to help people change their financial behaviours so they can achieve greater financial security.
Tony Stenning, Chairman of the Savings and Investment Policy project and Head of UK Retail at BlackRock says: “Fear, confusion and a lack of understanding is exacerbating this problem through inactivity, apathy and disengagement. Today’s pensioners are benefiting from the ingrained savings habits and more generous pensions of the past – but the future is going to be different.
“Over the past 25 years both the State and employers have had to significantly reduce the levels of income that people can expect in retirement. This means people need to save more just to maintain the same standard of living as their parents, meanwhile given increasing longevity their retirement pot will also have to work much harder to support their longer lives. The generations impacted most are those aged 35 or younger as they face rising housing costs, less generous pensions and are saving less. If nothing changes are they destined to benefit from longer, healthier lives, yet suffer financial hardship in old age?”
The Project group believes that the UK is facing a savings dilemma that will have a profound impact on people who have failed to provide adequately for their own financial well-being. Indeed, the so-called ‘baby boomers’ will be the last generation to enjoy financial security during their lifetime, especially in retirement, unless behaviours change and action is taken. People under 35 will have only two-thirds of the time to save twice as much money with which to provide the retirement income their grandparents enjoyed.
It is often assumed that people will simply work until they are 75 years of age, but this carries significant social consequences with younger people competing against an older, more experienced workforce unless there was meaningful economic expansion. People can take steps now to save more, accept a more modest retirement or indeed work longer. Longevity is a blessing; it should not become a burden.
Project members want to demonstrate that saving makes it possible to buy a house, go on holiday, plan for retirement and buy that luxury item. The UK’s debt culture must be turned into a savings culture – it must be higher up the social, economic and political agenda. This is an issue that impacts society as whole, which is why there must be a unified response from the financial services industry, politicians from all the major parties and consumer groups to demystify savings and develop truly long-term policies for generations to come.