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Schroders and the Pensions Management Institute have unveiled a series of pioneering proposals to improve financial resilience in the UK and support better pensions outcomes as part of their flagship Lifetime Savings Initiative (LSI).
Through its extensive research, the LSI has identified three of the most pressing challenges affecting people’s finances:
- The difficulty of building up a ‘rainy day’ savings buffer resulting in generally poor financial resilience
- The increasing challenge of owning your first home
- Inadequate long-term savings for retirement
After an 18-month period entailing two separate research publications and two in-person summits with an extensive range of industry leading stakeholders, the LSI recommends the creation of a National Short-Term Savings Plan (NSSP) alongside a new National Lifetime Savings Plan (NLSP).
These proposals draw on this robust analysis spanning existing UK research by leading specialists – all challenged and tested by our panel – and the lessons from leading savings and retirement systems overseas.
- The NSSP aims to support the creation of ‘rainy day’ funds, encouraging employers to offer employees the ability to make deductions from their net pay, which would be invested in a short-term savings product. This could transform the financial resilience of millions of people.
- The NLSP would extend the existing automatic enrolment pensions framework to make it more flexible and to incentivise employees to save even more. It would allow savers to draw on their pension savings early, to contribute to the deposit to buy their first home or to help address serious financial problems. Withdrawals would only be allowed on retirement savings from contributions in excess of the value of the statutory minimum – currently 8% of qualifying earnings.
James Barham, Executive Chairman, Schroders Solutions, said:
“Pension saving needs to change and it is in this context that we warmly welcome the UK Government’s wide-ranging pensions review. But it is also becoming clearer that for many people, looking after themselves and their loved ones through their working life, and into retirement, is about much more than pensions.
“Even when you take pensions freedoms into account, the UK’s long-term savings system is unusually inflexible. We think this provides an excellent opportunity to develop a model that catapults us to a framework that is right for the UK and leads the world as a model of best practice.
“We look forward to working with Government departments, regulators and the industry in moving this forward, to put the plan in place, to make a real difference to everyday people, society and the UK economy.”
Ruston Smith, Chair, Pensions Management Institute, said:
“The majority of the money that most people rely on to make ends meet in retirement is from their non-retirement savings. That’s why it is so important to think more holistically about lifetime savings leading up to and in retirement.
“Building short term financial resilience through a simple, accessible and trusted ‘rainy day’ savings fund, with the ability to allow more people to buy their first home, or get their finances back on track, whilst also contributing to long term savings for retirement is at the heart of this proposal – and strengthens financial resilience.
“All these measures contribute to an individual’s lifetime savings which have become so critical in retirement. This proposal accelerates and evolves the use of the UK’s automatic enrolment framework to meet the needs of modern society whilst also addressing the lifetime savings challenge.”
Steve Webb, Partner at Pension Consultants LCP and former Pensions Minister said:
“The start of a new Government is the perfect time to look at the big picture when it comes to pensions and savings. Individuals need a mix of short-term and long-term savings, including savings vehicles which will help with house purchase.
“It is vital that the Government’s pensions review looks broadly across the savings landscape and looks at ideas such as those generated by the Lifetime Savings Initiative. The goal must be savings policy framed around the changing needs of individuals over their lifetimes, rather than purely about existing individual financial products.”
The creation of the LSI and its subsequent recommendations have included extensive engagement with a broad range of industry-leading stakeholders spanning savings and pensions specialists, retailers, debt charities, financial education charities, unions, insurers, banks, platforms, fintechs and consolidators. It also reflected extensive research in the pensions and savings models of other countries worldwide and be read here.
Click here to read the original LSI report in full detail and here to read the detailed research analysing the savings models of a range of countries across the world.