UK must abandon debt culture to solve pension crisis

Rubbing out debt

The UK urgently needs to move away from a current culture of spending and debt to a culture of saving if future retirees are to have enough to live on, according to two leading savings and retirement experts.

Speaking at a debate hosted by financial data provider Morningstar, Robert Gardner, founder of financial services firm Redington warned that current levels of retirement saving are woefully inadequate.

‘Among the under 40s there is an expectation that they will retire as comfortably as their parents; however, as defined benefit schemes disappear this is unlikely, unless levels of saving go up dramatically. Come 2050, a lot of people are going to see their retirement expectations fall off a cliff,’ he says.

Gardner has long campaigned to raise levels of retirement saving, publishing a report co-authored by Lord Hutton of Furness in March, in which they advocate Britons save ‘at least’ 15 per cent of their annual incomes toward their retirement.

Cut out consumption

In order to achieve this Gardner claims that Britons – particularly those born during the credit boom of the 1980s and beyond – must radically change the way that they consume, prioritising saving over frivolities such as ‘expensive coffees’, ‘cigarettes’ and ‘new trainers’.

‘Currently, the average Londoner has £41,000 of debt outside of their mortgage; only a third of Britons have savings in excess of £250 while nearly 40 per cent have no savings at all. This is a huge problem,’ he says, adding that ideally people should have six months of expenses saved in cash as a ‘safety net.’

Tony Stenning, head of UK retail business at Blackrock and chairman of the savings & investments policy project (TSIP), agrees with Gardener, adding that the government needs to do more to make saving as accessible as credit cards and loans.

‘The government needs to lead the way in articulating saving – particularly pension saving – in a way that people can understand and relate to. It is incredibly easy to access information about, and apply for, credit cards and loans – it needs to be the same for saving,’ says Stenning.

Gardener proposes that the government should also increase its pension auto enrolment targets, currently set at 2 per cent of annual income and rising to 8 per cent by 2018. He holds Australia up as an example, where the auto enrolment level is currently 12 per cent, with many pushing for a rise to 18 per cent to plug the country’s savings gap.

On how a radical shift away from consumption and debt to saving might affect the UK and global economy – which is fuelled by consumption of goods and services – Gardner and Stenning conceded that there would be ‘short-term pain’.

However, according to Stenning, there could be a long-term gain: ‘If people stopped consuming so much and instead invested that money, it could be put to work in [non-consumer driven] sectors and companies that could create wealth and jobs over the long term.’


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