Tuesday

Why don’t people save?

People don’t save enough for their retirements.

People in their 30s could be forced to continue working until they are more than 74 unless they dramatically increase the amount they save, an insurer has warned.
Prudential said people in their 30s were setting a side an average of just £62 a month towards their retirement – £340 a month less than they need to.
The group said in order for someone on average earnings to retire at 65 on two-thirds of their pre-retirement income, including money they would get from the state pension, they should actually be saving around £400 a month

Why don’t people save more?


There are two reasons for the under-saving. First, the government strongly disincentivises saving by the poor. Most means tested benefits are not payable to anyone with financial assets of more than a specified amount. It used to be £15,000 – I don’t know the up-to-date figure. But it means that anyone who is – or thinks that in the future they might be – on means tested benefits, has a strong disincentive to avoid having savings of any substance.
Gordon Brown has added to this the Pension Credit which is a means-tested benefit for the elderly. This has pushed the discouragement to saving up towards those of more means. The pension credit means the benefit of saving – including saving through a pension fund – are seriously reduced unless one accumulates well over £100,000.
The second way in which the government has discouraged saving is through the state pension. The existence of the state pension makes people think, ‘The state is looking after my pension. I don’t need to think about it’. At some point in their lives, they discover this is not true. The state will not look after them in old age. The state pension is tiny. But they often discover the truth too late to do anything about it.
An honest politician would say: “Don’t rely on the state pension. It is very small and it is continuing to get smaller compared to average incomes.”
A decent politician would take means testing out of the equation by easing out the pension credit.
An open-minded politician would, as Peter Lilley did, propose a new pension scheme for younger people which would be invested in stocks, shares and bank deposits.
A radical politician would propose the gradual but wholesale abolition of the state pension, leaving only income support for those people who had made no provision for their old age. That is the policy that would have the most dramatic effect in encouraging a saving culture in Britain, just as it has a dramatic effect in Hong Kong.
The article quoted come from the
Daily Mail

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One Response to Why don’t people save?

  1. Gekko says:

    There are likely myriad other reasons not least of which is the pernicious effects of govt sponsored inflation. If you believe that inflation will whittle away the value of your savings (especially when the govt has forced interest rates so low) then it adds an incentive to spend now. Of course one could invest in the stock market rather than just ‘save’ but an aggressive and capricious tax regime reduces confidence as proved by Browns smash-an-grab on the pension credits.
    Add to that the recent booms and busts in equity markets (and the upcoming property bust) and generally it leaves little on the landscape that gives much scope for a secure future.
    Add into this mix the fact that new money is being created at a rate of nearly 10% per year (which is required to keep the interest rate artificially low) and you have a heady mix of the ‘wealth effect’, govt disincentives to provide for the future and the ever-pervasive consumer spending pressure (it’s ‘good’ for the economy remember) appealing to human nature.

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