Debt Forms ‘Cocktail’ Of Savings Shortfall

Britons could be set to find pressure on their day-to-day finances exacerbated in later life, a new study has intimated.

Pointing to research carried out by the Office of National Statistics (ONS), F&C Investments claimed that the proportion of savings made by British households stood at 2.1 per cent during the first three-month period of 2007, the lowest figure recorded since 1960. Meanwhile, the numbers of those making payments into private sector pension schemes was reported by the ONS to have fallen to 4.4 million in 2006, in comparison to the 5.7 million recorded in 2000.

Jason Hollands, spokesperson for the investments company, suggested that money owed via secured loans, credit cards and other forms of borrowing forms part of the “cocktail of reasons” into why consumers are not making contributions into pension schemes. He suggested that the increasing availability of credit, in addition to “poor” monetary education and a general mistrust of the financial services industry were also causes behind the retirement saving shortfall.

He said: “In particular there has been a shift in cultural attitudes towards debt. Being pumped up on easy credit no longer carries a social stigma. We are not just talking about those struggling to make ends meet either. Items that just a decade ago would have been regarded as luxuries - foreign travel, the latest mobile phone and must-have gadgets - are widely considered a much higher priority than resolving the conundrum of how to survive in retirement. This is like watching an accident happening in slow motion.”

Findings from F&C Investments also indicated that savings problems have been “exacerbated” for consumers receiving moderate wages due to the reduction of tax incentives associated with pension schemes and individual savings accounts. Meanwhile, a “sprawling” credits and benefits network were said to have deterred those households on lower incomes from putting money away as doing so could actually have a negative impact on their day-to-day finances. “For some on lower incomes, it is no longer economically rational to save because in doing so they stand to lose those benefits,” Mr Hollands claimed.

Consequently, the company has urged to the government to do more about getting Britons to prepare to offset debt management problems in later life. The spokesperson added: “With rising life expectancy, it is a matter of critical importance that action is taken to encourage people to save for their retirement.” His comments come after prime minister Gordon Brown had announced that potential first-time buyers are set to receive more help into getting onto the property ladder and will be in a greater position to make secured loan repayments.

Sentiments of a savings shortfall have been indicated in research carried out by Scottish Widows last month. Just under a quarter (24 per cent) of Britons were reported to be not saving into any sort of retirement scheme. Meanwhile, only 49 per cent were reported to be putting a sufficient amount of money away. However, this figure fell to 25 per cent when those on final salary pension schemes were disregarded from the survey.

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