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Is the £1m pensions lottery just a gimmick?

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Saving for a rainy day requires discipline, even more so when that rainy day seems so long away. But would the chance to win £1 million a month from a ‘pensions lottery’ encourage you to start saving for later life?

A report by the Chartered Insurance Institute (CII), highlighting the £9 trillion UK retirement savings deficit, has proposed a ‘pensions lottery’ scheme to incentivise people to think about the future and save in a pensions fund.

The idea calls for everyone contributing to a qualifying pension scheme to be entered into a once-a-month draw to win £1 million.

It’s not clear whether this would include a celebrity television show and thunderball numbers, although I’m sure that would help improve the tired image of pensions no end. But is this a serious proposal or simply style over substance?

The pensions gap

The urgent need to plug the pensions gap is hard to argue with. In the words of the minister for pensions Steve Webb:

‘The next generation will face a different world, with increasing life expectancy, the decline in final salary schemes and lower annuity rates. They are going to have to take greater responsibility for saving for their retirement.’

All fair points. Unfortunately, the CII report highlights a public resistance to savings due to tax complexities, a mistrust of the products available, uncertainties about the future savings landscape, and a lack of awareness of the importance of retirement planning. It also points to the cost of long-term care and debt as the key factors driving the retirement gap.

The idea of a lottery scheme doesn’t answer any of these questions. Instead, what it aims to address is the ‘reward gap’ of any form of long-term savings. In the words of Dr Ros Altmann, director general of Saga, who originally put forward the pensions lottery idea, the scheme:

‘[Taps] into the psyche of many people who probably want to feel that there may be something in it for them today, not just in some very distant future.’

A serious proposal

Although this scheme sounds like a bit of a gimmick, the government certainly needs to do something to encourage pensions saving.

Although the start of ‘auto-enrolment’ in 2012, where everyone will be joined into an employer’s scheme or NEST (The National Employment Savings Trust), should change things, currently only half the workforce belongs to an employer’s scheme.

Would a lottery scheme encourage you to save? Is this a wise way to spend £12m a year? And if you think it is, is one prize of £1m a month a good way to divide up potential winnings?

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Sophie Gilbert says:
12 May 2011

If currently only half the workforce belongs to an employer’s scheme and if the threat of poverty in the distant future hasn’t managed to persuade the other half to do anything about it, why not give this lottery idea a try? I already save for a pension, but I can see how many years ago such a scheme could have encouraged me to start saving (had I not had the benefit in the first place of having an older, wiser and trusted colleague in the finance department who got me to started on our employer’s pension scheme).

Could £12 million a year be better spent elsewhere? In the short term, no doubt! In the long term and depending how effective the lottery scheme proves to be, no. We’ll need to do the maths then.

Would one prize of £1m a month be a good way to divide up potential winnings? £1 million is a magic sum and it may tap more successfully into our psyche than, say, 10 prizes of £100,000.

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pickle says:
12 May 2011

It’s over the top.
What on earth would you do with £12 million a year?
One million would give you a lot of luxuries – a twelfth of a million a month would be ample and could be spread over a greater number of punters….

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richard says:
12 May 2011

Ummm Pickle – It means every month you have a chance to win a single prize of £1 million – Not a chance of winning an income of £1 million per month forever.

I’m sure it will impress those who gamble their money every week – but as a universal incentive – I really doubt it.

However – I don’t trust the government in any way – After all we were promised a living pension through NI – the state pension is now below the poverty line. This problem has been known about since before Thatcher – it could have been rectified by increasing NI over the years – but no – they all let it ride, NI was supposed to cover a living pension and is Government run – Why should anyone believe that the Lottery would be better run?

The problem is also company pensions are not guaranteed – Companies go broke – worker’s pension disappear – workers are not compensated – That Fat Mogul who committed suicide on a boat taking the pensions with him. – I am supposed to have a pension from a company which ceased trading – no way of recovering it.

Another problem is lack of job security – this makes even the immediate future bleak – so people decide to spend and enjoy now and let the future take care of itself. That won’t change until we have full and worthwhile employment,

Another problem is even if you save (as we were told to) for the future – The government destroys interest rates so income from saving is now 90% less than before – The government could have exempted pensioners from the swingeing cuts – Instead they are told they are “lucky”.on 10%.

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