Brits shopping their way towards retirement misery

As Prime Minister Gordon Brown puts affordable housing centre stage this week and the Conservatives advocate policies to "heal a broken society", leading investment house, F&C, is reminding policy makers to address the crisis in personal savings.

According to data compiled by the Office of National Statistics, the UK Household Savings Ratio for the first quarter of 2007 had sunk to just 2.1%, it's lowest level since 1960 when the country was emerging from a period of post-war austerity.

A further warning shot was issued by the ONS this week with data revealing that the number of employees paying into private sector pensions is tumbling with active employee members of private sector pension schemes falling from 5.7 million in 2000 to just 4.4 million last year.

"Between 1979 and 1997 the UK Household Savings Ratio averaged around 9.5% but since then it has averaged less than 5.5%," said Jason Hollands of F&C Investments. "With rising life expectancy, it is a matter of critical importance that action is taken to encourage people to save for their retirement."

Hollands cites a combination of easy credit, reduced tax incentives, benefit traps, poor financial education and mistrust in the financial services industry as a "cocktail of reasons not to save" .

"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," said Hollands.

"As Chancellor, Mr. Brown regarded the abolition of duty on betting as a higher priority than the removal of stamp duty on share dealing. As Prime Minister he has a chance to drive savings higher up the agenda," said Hollands.

F&C points out that the savings problem has been exacerbated by reduced tax breaks on pension schemes and ISAs - which have undermined the confidence of middle income savers - and a sprawling system of benefits and credits which deter those on lower incomes from saving.

"For some on lower incomes, it is no longer economically rational to save because in doing so they stand to lose those benefits. This, plus a combination of well intentioned – but nevertheless costly – regulations to clean up the industry have resulted in financial advisers withdrawing from the mass market. One perverse outcome of the Financial Service Authority's current Retail Distribution Review could be that access to independent financial advice will become ever more restricted to the wealthier."

F&C has given a cautious welcome to plans revealed this week to add a new subject of Financial Education to the national curriculum as part of a long term solution while also arguing for a return of tax-incentivised savings.

"Tax incentives for savings have been out of fashion since 1997 but we do believe things are now at a tipping point. Incentives are needed throughout the financial system to encourage personal savings," he concluded.