Tuesday 29 March 2016

What is the incentive for saving?

People appear to have gone off the habit of saving. For years wiser folk have recommended putting aside one-seventh of income for the proverbial rainy day.
The average savings ratio is now a meagre 5%, so why are we ignoring this advice?

Some are too poor. Day to day survival is a battle for many. They are targets for the payday loan crooks, some of who charge 1200% interest.

The fear of debt that kept our Grandparents cautious appears to have evaporated. Indeed the economy is largely based on borrowing. Get a car on the never-never. Use your credit card to fund a holiday. Furnish your home with the notional zero percent interest.

For the few thrifty folk, there seems little incentive to save. Conventional saving accounts are not being encouraged by Banks and Building Societies. Current interest rates are as low as 0.6% and that scant return is liable to tax. George Osborne’s plan to have Banks not deduct 20% of interest paid will only help the less well-off wage earners on the lower tax threshold. They will welcome this change, but they will account for a tiny proportion of savers.

ISA’s were popular when the tax free interest they generated was worthwhile. Today the rates for Cash ISA’s are at best 1.41%. A poor return for an Economy purporting to be growing by 2.5%. So the drift to Share ISA’s should grow, if and it is a big if, they generate a better return. Here the fine print becomes a warning.

Share prices can go down and in the volatile climate, careful savers may consider that now is the time to indulge and spend.

Then there is the Pension savers, an incentive tax scheme, whereby tax is deferred until the rainy days your savings can be retrieved. The Chancellor would like to collect these taxes when he’s still in charge, but fears a political backlash.

So it’s up to the Business in the wealth management sector to offer benefits that encourage people to save.

But what can they say?

Some try to demonstrate trustworthiness in a generic sense but without a proposition most are not credible. Hiscox did this well and Lloyds have the most beautifully shot series of films with memorable sound tracks. Others talk about longevity which in the light of recent failures elicits little positive response. Without upward trending performance graphs some can try calling on the reputations of wizards like Warren Buffet, Anthony Bolton and Neil Woodford, but it’s still a difficult sell. 

Advertising needs to have a credible and persuasive sales proposition in the way Rosser Reeves meant.

And that depends both on the financial service companies and talented creative people in advertising.

Monday 14 March 2016

Reasons to holiday in St Kitts and Nevis

I knew very little about these islands. Like most of you, I had known they were in the Caribbean and guessed their economy was largely based on Sugar and tourism.
What I didn’t know was their differences with other islands in the West Indies. Was the scenery more stunning than that of St Lucia? Were the locals friendlier? Was it easier to get to than Barbados?

It is likely that this holiday hot spot is desirable but is it sufficiently different from its promoted sister nations to merit consideration? What it needs is uniqueness and reasons to go now. Non deferability in fact.

Selling Travel provided both factors in their March issue in an article headlined “Celebrating in St Kitts“. It listed six things to do in the islands at different times of the year.

On the 27th of March, the fifteenth annual ocean swim between Nevis and St Kitts is open to all. Two and a half miles of excitement and fun.
In June St Kitts will host a tri-nation cricket tournament featuring the West Indies, South Africa and Australia.
Other events include a music festival, Restaurant week, Latin fiesta and at year end Carnival.

As Selling Travel says: “One of the best ways to experience the colour, personality and culture of St Kitts is to visit the island when a major event or festival is taking place”.

I was sufficiently intrigued to investigate further. Flights from London are regular. Next a call to a travel counsellor and a visit to the website provided the reassurance that the islands were attractive, sufficiently unique and offered things to do for people who wanted more to do than fly and flop.

However these reasons need to be promoted , perhaps by working with British Airways and relevant tour operators initially and if possible by mounting an effective advertising campaign.

Tell prospects about St Kitts and Nevis and they will come.

Thursday 3 March 2016

Pensionable age extension - An election loser

Politicians are talking about the necessity of raising the age when people can collect their state pension. The current expectation is that people born after 1978 would be able to collect their state pension when they reached 68 years.

George Osborne thought the pensionable age should rise to 70, but other people think it would have to be much higher. Some think that our increasing longevity warrants a pensionable age of 82.

This will be increased gradually, but people now aged 30 will be expected to work until they stumble into retirement at 82. They will already have worked for 12 years and the prospect of another 52 of servitude is bound to be unwelcome.

A man aged 30 today is expected to live for another 51 years, so the average man will not live long enough to collect his pension. The average woman of 30 has a life expectancy of 85, so her longevity will cost the State three year’s pension. Hardly fair for sixty years of contribution. We think of these contributions as savings for old age, but the Government has used these payments to pay for existing pensions. So there’s nothing in the pot for future generations.

Will people accept these changes?

The large number of people likely to be affected makes this move a vote loser for the political party responsible for its initiation. In the end, this may only be a red herring to introduce a new retirement age of 70.

And there’s another reason for watering down these proposals. Employers may baulk at the retention of so many elderly staff who may earn more than young entrants and who are less able to cope with technological developments. What if unemployment amongst the elderly rises and unemployment payments fill the space intended for by wages?  

Also increased longevity doesn’t necessarily imply good health. Many chronically ill individuals will have to be paid sickness benefits.

It may be that the very prospect of a delayed start to retirement will spur the growth of private pension provisions. We currently save less than 5% of income for our old age. Financial experts think the ratio should be more like 15%. But the Chancellor is sending the wrong signals with tax caps on pension pots over £1.25 million. Pensioners also pay tax on the residue of their funds after the tax free portion is deducted. 

Mr. Osborne and his successors must devise better incentives for people to save because the State cannot provide in the way William Beveridge anticipated all those glorious years ago.

Perhaps Neil Kinnock was right when, on the eve of the 1983 general election, he warned us ‘not to get old’.