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The government has been urged to create a new National Lifetime Savings Plan (NLSP), as well as a National Short-Term Savings Plan (NSSP), to help improve financial resilience.
The recommendation was one of a series of proposals to improve financial resilience in the UK and support better pensions outcomes outlined by Schroders and the Pensions Management Institute as part of their flagship Lifetime Savings Initiative (LSI).
The initiative identified three of the most pressing challenges affecting people’s finances: the difficulty of building up a ‘rainy day’ savings buffer, resulting in generally poor financial resilience; the increasing challenge of owning your first home; inadequate long-term savings for retirement.
However, the LSI suggested that a NLSP could help extend the existing automatic enrolment pensions framework to make it more flexible and to incentivise employees to save even more.
It also said that this could allow savers to draw on their pension savings early, to contribute to the deposit to buy their first home or to help address serious financial problems.
Under the recommendations, withdrawals would only be allowed on retirement savings from contributions in excess of the value of the statutory minimum, which is currently 8 per cent of qualifying earnings.
The NSSP, meanwhile, would aim to support the creation of ‘rainy day’ funds, encouraging employers to offer employees the ability to make deductions from their net pay, which would be invested in a short-term savings product.
Commenting on the recommendations, Schroders Solutions’ executive chairman, James Barham, said: “Pension saving needs to change, and it is in this context that we warmly welcome the UK government’s wide-ranging pensions review.
“But it is also becoming clearer that for many people, looking after themselves and their loved ones through their working life, and into retirement, is about much more than pensions.
“Even when you take pensions freedoms into account, the UK’s long-term savings system is unusually inflexible. We think this provides an excellent opportunity to develop a model that catapults us to a framework that is right for the UK and leads the world as a model of best practice.”
If you want a better view of what your future could be, we'll have a chat over a cup of coffee in our Durham office and work out if we can add any value to your financial picture.
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