Two new national savings plans, one for short-term pots and one for long-term savings, should be established help people build financial resilience, according to the Lifetime Savings Initiative.
The Lifetime Savings Initiative – set up by the Pensions Management Institute and asset manager Schroders – this week published a report recommending the creation of two new national savings plans to help people save over different timescales.
A proposed National Short-Term Savings Plan would create “rainy day” savings pots for individuals, while a National Lifetime Savings Plan would encourage saving for retirement while also allowing access for housing costs.
Both systems would be funded through deductions from net pay, meaning savings pots would build up before the money hit savers’ bank accounts.
The recommendations followed 18 months of research, which highlighted how difficult it was for many people to establish savings “buffers” to pay for unexpected expenses. The research also illustrated the difficulties many people face when trying to buy a home and in saving enough for retirement.
More than just pensions
Ruston Smith, chair of Pensions Management Institute, highlighted that most of the money people rely on during retirement does not come from pensions. “That’s why it is so important to think more holistically about lifetime savings leading up to and in retirement,” he said.
Smith continued: “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.”
James Barham, executive chairman at Schroders Solutions, said that the initiative’s work and that of the government through its Pensions Review had shown that savings and financial resilience was about much more than pensions alone.
“Even when you take pensions freedoms into account, the UK’s long-term savings system is unusually inflexible,” Barham said. “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.”
Industry support
The report and its recommendations have already drawn support from across the financial services industry.
Steve Webb, partner at LCP and a former pensions minister, said the start of a new government was “the perfect time to look at the big picture when it comes to pensions and savings”.
He argued that it was “vital” that the government explored the savings landscape more broadly through the Pensions Review, including the Lifetime Savings Initiative’s proposals.
“The goal must be savings policy framed around the changing needs of individuals over their lifetimes, rather than purely about existing individual financial products,” Webb said.
Eve Read, senior director of strategic delivery at Smart Pension, supported the idea of introducing more flexibility into the auto-enrolment regime to support savers.
She added: “We do also recognise the need for the government to consider those who are less able to save for retirement and therefore not able to prepare as much in advance in the same way as the middle-earners targeted in these findings.”
Nigel Purves, CEO and co-founder of Wayhome – a housing company that supports gradual homeownership with the help of external investment – supported the Lifetime Savings Initiative’s conclusions.
“People have a need for both housing and pensions and, for most people, they are likely to be their two biggest assets,” he said.
“Joined up thinking that seeks to make pensions and housing better work together for people has the potential to create a ‘win-win’ and is a positive step forward. With this we can help people get on the housing ladder and also save more for their future retirement at the same time.”
Further reading
Renting in retirement: The relationship between pensions and housing (3 July 2024)
PMI conference: Joined-up thinking needed to solve saving problems (4 July 2024)
UK facing ‘cliff edge’ on pension provision, Mercer warns (28 August 2024)
