Government Lending Scheme For Your Retirement!

An article exploring a radical new approach to retirement planning by way of a government-lending scheme.



The projections for the UK population in relation to retirement funds are not good. Survey after survey and research piece after research piece continue to show that the majority of people under 60 do not have enough money in hand to retire.



This position can only change via one solution: those looking to retirement have to save more. The money that people will enjoy in retirement has to come from their own efforts; the age of big brother support is gone. Relatively the State Pension is dwindling and the Final salary scheme provided by an employer is all but a distant memory (unless you work in the Public Service).



At heart the only real solution for most is to save more and spend less. This saving is in reality only deferred spending anyway, the position is that the balance between savings and spending needs to shift. However for a very large segment of the population saving seems to be something, which is deemed to be ‘painful’. We need to think differently and look at ways of encouraging saving. Government thinks this can be achieved in two ways and are acting accordingly.



The carrot



One is to maintain and sustain supposed tax favourable savings schemes such as ISAs and Personal Pensions (including Stakeholder Pensions). In reality anyone who is quite good at mathematics and can use a calculator will realise that the tax treatment of these plans is bordering on being favourable rather than being outstandingly favourable. This is because the added value created by the "tax break" is normally not as high as perceived or as some might have you believe. However let’s not belittle the overall aim which is to try and help people save by giving them tax incentives and there is some evidence that this works.



The stick



The other is to enforce savings and the obvious route is via the employer. The proposed legislation that encompasses Auto Enrolment is the jewel in the State Crown to get everyone saving into a retirement plan. Despite the onus on Employers (who after all are also already unpaid tax collectors) this idea seems to have merit and by instigating pension schemes for all employees via their employer, who will be forced to offer and run such schemes, it is likely that the amounts saved will climb.



However positive both of these measures may be they don’t really seem radical enough to make the revolutionary change come about that seems to be required.



So here’s an idea that captures some of the above and enhances it onto a new level.



Government should create a national lending scheme for people who want to borrow to put money into a pension. Government already offer a universal lending scheme (for Tuition Fees) and could do the same for pension contributions. Indeed government could probably do this and lend nothing themselves! This is because they could get the Banks to offer the lending and simply provide a guarantee on the money.



The key here is that there is a bag of evidence to show that the more people can get into their saving pots, the sooner, the better.



So if government supported a universal bank-lending scheme to allow people to put money into their retirement plans the position could be radical.



Think of some of the added benefits:



1. The banks would have a hugely popular long term secure lending scheme

2. More money would go into savings plans, much of which could be directed into UK investment funds, possibly boosting the UK stock market.

3. People would have a pension started with their "loan" and would presumably be much more likely to add to this than if they had nothing at all.



Of course there is a raft of detail, which would have to be considered, but some basic number crunching at an individual level shows how profitable this could be for all concerned.



Matt Morris