New proposals aim to boost financial resilience and improve retirement outcomes
Schroders and the Pensions Management Institute have proposed changes to the UK’s automatic enrolment pensions framework to allow individuals to use pension funds for house purchases.
The proposal is part of their broader Lifetime Savings Initiative (LSI), which aims to improve financial resilience and support better retirement outcomes.
The LSI has identified three key financial challenges facing UK citizens: difficulty in building short-term savings, the rising challenge of home ownership, and inadequate long-term retirement savings.
Following 18 months of research, including two major reports and industry summits, the LSI has published a report proposing the creation of two new plans: the National Short-Term Savings Plan (NSSP) and the National Lifetime Savings Plan (NLSP).
The NSSP aims to boost financial resilience by helping employees build “rainy day” funds. It would allow workers to allocate part of their net pay into short-term savings accounts through employer schemes.
The NLSP, an extension of the existing automatic enrolment framework, would allow more flexibility in pension savings. Savers could withdraw funds above the statutory minimum of 8% of qualifying earnings to help buy their first home or address financial emergencies.
Schroders and the PMI today unveil a series of pioneering proposals to improve financial resilience and support better savings outcomes in the UK.
— Schroders (@Schroders) October 8, 2024
Find out more here: https://t.co/9cj10sKN5e
#lifetimesavingsinitiative #LSI #savings #financialresilience #pensions pic.twitter.com/SZGz6pkZyn
The LSI’s recommendations followed extensive consultation with industry experts, including pension specialists, financial education charities, banks, and fintech companies, and drew on lessons from international savings models.
“Even with pension freedoms, the UK system remains unusually inflexible,” said James Barham (pictured left), executive chairman of Schroders Solutions. “We look forward to working with the government and industry to make these changes.”
Ruston Smith (pictured right), chair of the Pensions Management Institute, emphasised the importance of building short-term financial resilience.
“Creating a simple and accessible rainy-day fund, while also allowing people to save for a first home, strengthens overall financial resilience,” he added.
Steve Webb, former pensions minister and now a partner at Pension Consultants LCP, called the start of a new government an opportune time to rethink pensions and savings policy.
“Individuals need a mix of short- and long-term savings options, including ways to help with home purchases,” Webb noted.
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