How do we get people to save?

How do we get people to save for the future, is a question that has no easy answer?  In England there is a group called “The Money and Pensions Service (Maps)” which has just launched its 10-year financial wellbeing strategy, which includes the aim of getting five million more workers saving for later life.

As well as its plans to get 28.6 million people understanding how to plan for their retirement by 2030, five million more than currently, Maps’ UK Strategy for Financial Wellbeing sets out four more “agendas for change”.

By the end of the decade, Maps said it wanted 6.8 million children and young people to get a meaningful financial education, and to increase the number of working-age people who regularly put money into savings.

The organization’s other goals were ensuring two million more people get the debt advice they need and reducing the number of people relying on credit to pay for food and bills by two million.

This is a wonderful initiative and a worthwhile goal and one that I hope they achieve. If you do a search on how do we get people to save for retirement, you will get hundreds of posts along the same ideas:

·  It's never too early — or too late — to start saving for retirement

·  If you are just starting out, focus on saving as much as you can now

·  Focus on starting today

·  Meet your employer's match

· Take advantage of every government program open to you in your country

· Automate your savings

· Rein in spending

· Set a goal

· Stash extra funds

· Consider delaying Social Security as you get closer to retirement

However, many countries are facing a retirement savings crisis. In the United States, for example, the fraction of workers at risk of having inadequate funds to maintain their lifestyle through retirement has increased to over 53%. 

One reason for the savings crisis is the ongoing shift in the private sector from defined benefit pension plans (DB, where retirement benefits are formulaic and known in advance) to defined contribution plans (DC, where benefits depend on investment outcomes). Making some type of payroll-based savings plan available to everyone is essential because it is the most effective way for the middle class to save. But having a plan offered at the workplace is not sufficient. Even for those with access to an employer-sponsored plan, almost a quarter fail to join, and among those who do join, many save too little.

Behavioural Economists tell us that there are four essential ingredients to any comprehensive plan to facilitate adequate saving for retirement: availability, automatic enrollment, automatic investment, and automatic escalation. These ideals are hard to implement due to regulations, union agreements, and peoples’ ideas that they can do better than any plan. 

In Canada we are fortunate because we have programs that are designed to help us replace up to 33% of our work income. This means that if we want to save for retirement, we only need to save to replace 37% of our income. Experts tell us that we should have enough savings to give us about 70% of our work income when we retire, since our government programs replace 33% of our income or soon will, then we only need to fill the gap and save the remaining 37%, So, if your employer does not have any plan, then follow the advice given at the beginning of the post and you should be in better shape than having no savings.