The UK doesn’t save enough.
It’s a plain and simple truth that the savings and investment industry has known for decades. Politicians have finally cottoned on – and they are worried.
Report after dull report has concluded there will be a generation who retires into penury, or cannot afford to retire at all, because they have not squirreled enough away.
The big question is, what can we do now to dodge the diet of ready meals and food stamps awaiting us when the 2030s roll around?
We already have the automatic enrolment programme, introduced in 2012, which forces millions of employers to offer their staff pensions. But even once it is fully rolled out, less than 8 per cent of your salary will go into a pension.
One of the more popular ideas is to copy a system used in the US where a portion of any pay rise is automatically added to your pot, the theory being you’re not as likely to notice the cut.
But last week Ros Altmann – the pensions minister – suggested something a lot more fun: a pensions lottery.
She said: ‘From a marketing standpoint, I’ve always been attracted to having lottery money attached to a pension. The chance that every month someone saving into a pension could win a million pounds. And not a million pounds into their pension but to themselves immediately, that might catch the imagination of young people.
‘Premium bonds have been sold quite successfully on that basis – maybe the possibility of jam today will capture the imagination.’
It you were being grand you’d call this behavioural economics, essentially using a bit of basic psychology to jolt people into making choices that are good for their wallets.
So, could the minister’s idea work? If you were entered into a lottery in return for putting aside a bit extra for your pension, would you do it?
Let’s take a look at Premium Bonds, one of the most popular savings plans in history with over £62 billion invested. Provided by State-owned NS&I, you lock your money away – earn no interest at all – but are automatically placed into a prize draw.
According to Moneysavingexpert, the odds of a £1 bond number winning £25 is 30,000 to 1, but 30 billion to 1 for the £1 million top prize. Yet, despite the long odds and falling attraction (as ISA limits rise) the public’s appetite has not dimmed.
Tom Selby, a senior analyst at investment firm AJ Bell, says harnessing the thinking behind Premium Bonds could help bridge the savings gap. But he adds: ‘It’s important any new incentive is available to all and complements the existing pension system, rather than seeking to replace it. Furthermore, it must retain simplicity at its heart because the last thing savers or businesses need is any added complexity.’
Karen Bolan, head of engagement at financial communication specialist AHC, says adopting the idea would have practical challenges if added to the auto-enrolment system. And she adds it would have to be designed so wealthier people were not more likely to win because they have bigger savings.
But these are minor niggles.
All that’s needed now is a charismatic host and a prime-time Saturday night slot on BBC One for the live draw. With any luck we’ll be gambling, not with but using our pensions, before the year’s out.
Sam Brodbeck is Head of News at Money Marketing
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