BLOG: What really needs to change to get people saving
The headlines from last month called it a victory for savers and a radical overhaul of how we traditionally save. Readers of Your Money will know that year-on-year the return on their savings have been hit by high inflation and record low-base rates. These conditions are particularly unwelcome for those on fixed incomes like pensioners, but more widely it is damaging to fostering a savings culture in the UK. Statistics show that countries with higher savings ratios also have lower debt levels too.
The measures introduced are welcome and should go some way to address these potential problems. The future inclusion of peer-to-peer lending as part of the ISA wrapper is stirring interest across the market from both journalists and potential investors.
The increased £15,000 tax-free limit and the ability to transfer between cash and shares ISAs will make a difference to people whose risk profile may change. Plus, the new rules and limits of Junior ISAs and pensioner bonds will help set up a new generation of savers and a helpful buffer for those in retirement.
These are overdue, but are we still missing a trick here?
The Treasury’s own forecasts highlight that they expect the UK’s savings ratio to fall to 3.2% by 2018. Indeed, I only have to look at Aldermore’s own average saver profile to have a better understanding of what else needs addressing. Those who have paid off their mortgage, those approaching retirement and those on fixed-incomes either have fewer outgoings or can afford to save and understand the importance for putting money away. However, for those under 30, easy credit and aggressive marketing have created a ‘spend-now’ culture which is all they have ever known. ‘Twentysomethings’ simply aren’t saving enough because they’ve can’t and they’ve never been told to.
In today’s economic environment, low-interest rates mean that paying down debt is a more rational thing to do. Saving for a deposit on a house remains their biggest aspiration and the idea of saving for a pension seems distant, confusing and for some a waste of time.
The ISA remains the obvious vehicle of choice to save for those new to the workplace, but even a £15,000 limit remains a pipe dream. Tax-free savings are a crucial part in incentivising people to put money away, whether it is in an ISA or pension, but saving needs to remain relevant in the short, medium and long term.
The ISA turns 15 soon and while it remains as popular as ever, particularly with the new changes, perhaps it’s time for a wholesale review to ensure it remains relevant to all. Most understand the tax benefits of an ISA, but for some it remains simply another savings account. We need a system that keeps pace with societal and cultural evolution too. ISAs should be used to stimulate good practices such as house deposits or tuition fees, something far more relevant to youngsters.
Putting money away is a good habit and should bring rewards. If we are to stimulate the savings market then we need to target it correctly and not make saving a wholly abstract concept. Both the Government and the banks need to work together to ensure an entire generation doesn’t miss out.
Simon Healy is managing director for savings at Aldermore Bank