The government’s inclination to focus on demographic groups for its retirement savings initiatives risks creating a ‘lost generation’ of investors now aged between 40 and 54, warns Gareth James.
A recent theme of government retirement savings policy has been to target initiatives at individuals in clearly defined demographic groups.
Between 2014 and 2015, for example, we saw the announcement and introduction of pension freedom. The reforms, branded as the most significant change to pensions in a century, were aimed squarely at savers aged 55 and over. While the prospect of the additional flexibility may encourage some younger savers to invest, it offers them little in terms of immediate benefit.
Then, from 2016 to 2017, we have seen the announcement and introduction of the Lifetime ISA. We do not yet know how successful the product will be although there is an argument that, by combining elements of the ISA and pension savings framework, it represents the most radical savings innovation in a generation. Aimed squarely at those aged between 18 and 40, this innovation offers nothing to ineligible older savers.
When looking at these policies, I have pondered on the government’s objectives. Has any consideration been given to the bigger picture – or has the focus purely been on offering more to defined groups of people. When it comes to pension freedom, no doubt accelerating the tax take from decumulation also played a part.
For some time, AJ Bell has called for the government to create an independent savings commission to ‘de-politicise saving’. Our hope is that an apolitical – or at least cross-party – commission would be in a position to consider the bigger picture and come up with proposals that work for all savers, rather than those within particular age groups.
The issues with developing policies for defined age groups are demonstrated when you consider another group who are acknowledged as suffering from a chronic problem of lack of retirement saving – the self-employed.
Failing the self-employedAuto-enrolment has done a great deal to improve the number of people saving into pensions in the UK but one of the groups the initiative has failed is the self-employed.
If we want to look at the ages of those most likely to be self-employed, then figures produced by the Department of Business, Innovation & Skills in 2015 can help. Its statistics show the number of self-employed split into five-year age-bands.
The three groups covering those aged between 40 and 54 are the three largest bands, and the only groups containing more than half a million individuals (the band covering those over 60 was larger but covers a much larger age range).
We have reached a position where the government has acknowledged a problem with self-employed saving. The same government has implemented two major savings initiatives that are of no immediate benefit to those aged between 40 and 54.Yet the largest number of self-employed individuals fall into this age range.
We must acknowledge those currently excluded from the Lifetime ISA and pension freedoms still have plenty of scope to save – after all, we can hardly call them the ‘lost generation of retirement saving’. Still, it remains interesting that policy development has focused so narrowly on particular demographic groups.
If an apolitical savings commission was in place I would question whether its recommendations would be as narrowly focused. Its ability to consider the bigger picture is one of the strongest arguments for its creation.
Gareth James is head of technical resources at AJ Bell
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