Savings & Investing

Very little, very often!

May 3, 2016
By Dawid Konotey-Ahulu

Europe has a growing pension gap with half of EU’s population without financial savings.

Societal disruption of conventional ageing and retirement will only be achieved when the Nation, as a whole, saves for later life—regularly and meaningfully.

The Nation has little appetite or propensity to save for later life, or at all. Household savings ratios have fallen to just 4.7%.

However, as people live longer, and with chronic disabilities, three in four over the age of 65 will require some form of long-term care and one in ten families will be hit with costs of £100,000 or more in their lifetime. The UK Government has very limited resources to fund the spiraling cost of general long-term care (which differs from ring-fenced acute medical/hospital care) and, increasingly, is unable to do so. These systemic low levels of savings (and inadequate pensions) mean most people will be hard-pressed to fund their own social care from their savings or pensions and will find themselves in serious financial difficulty. The cost of long-term care is so high, and people are so constrained, they are likely to suffer reduced basic living conditions. The combined effect of inadequate self-care and low financial resources is leading to a poor long-term health outlook and a growing number relying on the National Health Service (NHS) in old age.

The NHS is itself in severe financial difficulty with a current annual deficit of at least £2bn. The projected additional burden of care is likely to result in the structural collapse of the NHS, placing an intolerable burden upon the Nation’s under-resourced care services. As individuals struggle to cope, they may be forced to rely upon their family members for care in later life and, if they have equity in their home, to monetize that interest. This will, in turn, have two significant adverse consequences: family members may be obliged to cease full time work in order to provide care, and family estates will not be available to pass down to children (and future generations). Thus, younger generations will be deprived of ‘birthright’ assets that might otherwise have provided an essential platform in the quest for a first home or other significant outlays in early adult life.

The simple big idea

Adapt an existing everyday interactive mechanism to radically transform the Nation’s propensity to save: every time I pay for any item using my contactless debit card a tiny proportion of the sale amount is skimmed into a long-term savings account. I can choose whether to a) skim 1% of the sale amount or b) round every sale amount up to the nearest pound, dollar or euro (as the case may be). The Government matches the amount saved.

Conditions and assumptions – 'EAST'

Easy – every time I use ‘contactless’ a ‘tiny’ amount accumulates as savings;

Attractive – into a government-matched, low-fee, risk/return optimized account;

Social – my peer group, my friends, my social contacts are all saving in this way;

Timely – Gen Z’s culture of ‘Now!’, Apple Pay, Contactless, Connectivity, and the Savings Crisis are all converging.

Assumption

Government accepts that the short term cost of matching savings is more than offset by the long term cumulative social and financial cost of a failed NHS and impoverished Gen Z.

Key implementation steps

  1. Discussion with Government regarding commercial and social case for funding, and promoting a ‘matched savings’ scheme. Requires detailed analysis of potential cost/benefit to government; realistic assessment of savings pots achievable; moral hazard associated with those in population who do not use debit cards.
  2. Discussion with commercial banks regarding implementation of Contactless Savings. The contactless smartphone payment system is widely established and, in the modern age, the technological adaptation to enable contactless savings should be straightforward.

Very little, very often!

Hear Dawid Konotey-Ahulu describe his one idea for the societal disruption of conventional aging and retirement.

Dawid Konotey

About the author

Dawid Konotey-Ahulu
Founder and Co-Chief Executive, Lead Investment Consultant, Redington

Dawid Konotey-Ahulu is Co-CEO of Redington, a consulting firm advising mainly large pension schemes on investment and implementation strategy. Redington has “assets under consulting” of around £400m and is the UK’s fourth largest investment consultant by A-u-C.