Report proposes new ways to get people investing

By Ryan Weeks on Tuesday 8 August 2017

Alternative Lending

Embattled peer-to-peer lender RateSetter supports newly released “Saving Better” report.

Embattled peer-to-peer lender RateSetter supports newly released “Saving Better” report.

A new report on savings and investment suggests that savers are missing out on billions of pounds by spurning investment opportunities, including peer-to-peer lending. The report is supported by RateSetter, one of the UK’s largest P2P operators, and was produced by the Social Market Foundation think tank.

The report found that savers are holding more than £200bn in cash above and beyond what is referred to as the “rainy day” level. “Rainy day” funds – which are held in cash in case of emergency – are defined by the report as three months’ worth of income. The Social Market Foundation says that this idle pot of £200bn could have generated returns of £94bn over the past five years, had it been invested in the FTSE 100, or £40bn, if invested via P2P lending.

RateSetter has a clear motive for supporting the report. Peer-to-peer platforms explicitly offer investment opportunities, and must be careful to keep themselves distinct from savings products, as P2P is not covered by the FSCS. RateSetter has long been a proponent of the idea that holding money in cash, with interest rates lower than inflation, results in the slow erosion of value.

“It is clear that an alarming number of people are not saving at all, but in addition, even those that are diligently putting money away are being short changed by holding their money in close-to-zero return cash accounts,” said RateSetter’s CEO Rhydian Lewis.

“Moving surplus cash into investments like peer to peer loans, and accepting some risk in exchange for the prospect of better returns, could have added tens of billions of pounds to people’s wallets and purses over the last five years, which might in turn have spurred them on to put even more money away.”

RateSetter is currently offering fee-free sell-outs to its investors, after a rocky patch that has seen new information about its former wholesale lending partners come to light. However, its investors will not be able to sell out of the platform unless there is sufficient liquidity in its secondary market. 

The Saving Better report made several recommendations for boosting people’s propensity to invest. These include a government review and reform of the policy framework for saving and investing and the minting of a new type of bond for retail investors. The report's authors suggest that these so-called “Britannia Bonds” should be actively marketed to the public as an opportunity to invest in the future of the UK, and could lead to at least £30bn of investment over the next five years.

The report also calls on the government to create a “Fund at Fifteen” scheme, using money saved by reducing ISA allowances to give all 15 year olds £1,500 to invest across a range of asset classes – supplemented by financial education.

The report’s author Matthew Oakley, who is a senior researcher at the Social Market Foundation, said that poor saving performance is a major social policy concern. “Giving each 15 year-olds £1500 to invest from 2020 would ensure all young people have at least some financial assets, and would teach them the value of saving and investing wisely,” he added.  

You can access the full report here. 

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