Less than half of working age Brits are saving into a private pension. But pensioner poverty is widely talked about in the media. Unless the behaviour of half of the British working population can be changed, the state will have to pick up the bill in some form or another. It is clear that frightening people about poor standards of living in later life is not working. So how else can people be encouraged to save for their retirement?
Target younger people
It seems obvious that retirement products are aimed at older people. However, the sooner you start saving, the longer your fund has to grow and the higher risk/higher reward strategy you can afford to take. That, together with the beneficial effects of cumulative interest on savings made early in your working life means that the financial benefits of starting early should be obvious.
And even younger Brits are reluctant to use pension schemes for fear of “locking away” their spare cash, encouraging them to become a nation of savers must be a good thing.
A method of beating the taxman
Investing money into products which have been recognised as pension products by HMRC attract significant tax reliefs, which should be enough to entice taxpayers into the schemes in its own right. After all, everyone likes the opportunity to save some money from the taxman.
In a recent survey by the think tank the Strategic Society Centre, it was found that where employers make a contribution to their staff’s private pensions, employees are much more likely to make a contribution from their own wages.
Compulsory savings is on its way
Given that previous attempts to scare people or entice them into paying into a private pension have largely failed, the UK government has introduced a system which will force people to use pensions which comes into effect later this year. Employers with more than 50 employees will have to provide and contribute to an occupational pension scheme, automatically deducting a contribution from an employee’s salary, and making a contribution from the employer’s own perspective too. It will be possible to opt out of the scheme, but the policy relies on our apathy and assumes that workers will not get around to “opting out”. It is a shame that the government has had to resort to relying on taxpayer apathy, but the automatic enrolment scheme can only be a good thing.