Jeff Salway: Bright ideas to get the country saving: Osborne should take note

THE UK savings crisis has reached a stage at which desperate measures are required. Yet the key to tackling it may lie in simplicity and being creative with the savings and pensions infrastructure already in place – and such a solution has been put forward this week.

That the UK faces an alarming savings crisis is disputed by no-one. The industry and the government have thus far attempted to tackle it on the "lead-a-horse-to-water" basis that incentivisation is the only answer, through products such as stakeholder and Isas. That has helped, but has fallen a long way short of what's needed.

This is where a report published this week by Edinburgh-based insurer Aegon, in conjunction with the Association of Independent Financial Advisers, makes a vital contribution to the debate. Its proposals for tackling the crisis come partly from the angle of behavioural finance, and one suggestion stands out in particular.

What's the biggest objection to saving for a pension? Typically it is a lack of spare cash, often because of more urgent debt repayments. The report suggests a "debt-to-saving" model, which would work by diverting both employer and employee contributions into a workplace pension to repay the consolidated debts and then to build up a pension pot once the account is in the black, with only the "positive" contributions receiving tax relief.

A host of potential objections spring to mind, but the objections are, on the whole, easily surmounted. The employee must commit to a period of pension payments once the debt is repaid; the employer wins staff loyalty; the government saves on benefits in the long-term; and two inter-related problems – rising debt and falling savings – would be tackled in what is arguably a win-win scenario.

Another simple but effective proposal in the report is already in action – a "save back" option allowing shoppers to divert money into their savings accounts at the point of purchase, in the same way that they can request cash back. Some supermarkets already offer Save Back, including Sainsbury's, and it will feature prominently in the Tesco Bank proposition.

The new government has so far given no indication that it has credible ideas to tackle the savings crisis. Instead, it has announced two policies – raising capital gains tax and scrapping child trust funds – that undermine George Osborne's pre-election rhetoric about restoring the savings culture. If the government is serious about creating a new savings culture, fresh thinking, such as Aegon's proposals, must be taken seriously.

Equitable Life

A YEAR ago the Parliamentary Ombudsman, Ann Abraham, criticised ministers for rejecting her recommendations on Equitable Life. In 2008, Abraham found that regulatory failure by various government departments contributed to thousands of policyholders losing their retirement savings after the near-collapse of the insurer in 2000. The government acknowledged some regulatory failures, but decided that compensation would be means-tested.

Now the new government says it will set up an independent scheme in which non-means-tested redress would be paid to former and existing policyholders and the dependants of policyholders who had died. All very promising, but policyholders are not counting their chickens just yet – with a cost that could reach 5 billion, the promised compensation will doubtless be subject to yet more delays and revision.