It’s one of the ironies of modern life. On average, we are living longer – which is clearly a good thing – but our increased longevity has not been matched by a parallel inclination to save – either for retirement or a rainy day. Nor is there any guarantee that a long life will equate to good health. Thus, when the time comes to leave work, many of us may face the double whammy of a shortage of cash and illness.
That’s the premise behind a new family of long-term savings plans launched this month by health and life insurer Vitality.
According to Vitality, too many of today’s investment products are failing to address the fact that people are living longer but not saving enough. In response to this perceived market failing, Vitality is offering three new products – namely a Stocks and Shares ISA, a junior ISA and a retirement plan – each with built-in incentives designed to nudge customers towards behavioural changes.
The Fitness Factor
And in particular, Vitality is encouraging savers to take positive steps to stay fit, with lower management charges as the prize for those who do.
It works like this. A saver who has invested under £30,000 in a Vitality plan will pay an annual management charge of 0.5%. However, that charge will fall as the saver hits certain fitness levels – classed as bronze, silver, gold and platinum. Truth to tell, a customer who achieves bronze status benefits only from the satisfaction of knowing that he or she is probably just a tad more trim and perhaps better able to cope with a steep flight of stairs. However, in the case of gold, silver and platinum the fees fall to 0.4%, 0.25% and 0.0% respectively. At the other end of the scale, savers who have more than £500,000 set aside can take their charges down from 0.15% to 0.0%
So how do you demonstrate your fitness? Sadly, it’s not just a case of ringing up Vitality and telling them you’ve just bought a Fitbit. Those seeking to qualify for discounts are required to sign up for the Vitality Healthy Living Programme. After an online health and fitness assessment, customers are invited to sign up to achieve a series of goals. Once a plan has been established, customers can then earn activity points by monitoring activities such as running, swimming and walking and recording their progress on a fitness checking watch or at participating gyms. You can, for instance, earn vitality points by walking upwards of 7,000 steps a day or by burning calories at a series of predetermined rates. These points feed through to bronze, silver, gold and platinum status
Incentives to Save More
Meanwhile, to encourage customers to set aside more, the company is offering an investment booster, which can add as much as 15% to the value of savings over a 25 year period. This boost is governed by how soon the customer begins to save and the length of the savings period.
In the case of its retirement plan, Vitality is offering a boost of up to 50% of the value of drawdown pots, with the extra amount dictated by the total invested and the amount drawn down by the customer. Put simply, those who save more and draw down less will ultimately receive bigger boosts.
Vitality says the products are built around the concept of “shared value,” and the idea that positive behavioural change will deliver benefits for all stakeholders.
“By changing behaviour, we produce economic and health benefits that are good for our members, good for our advisers, good for us and good for society,” says Herschel Mayers, CEO of VitalityInvest.
Not a New Concept
Rewarding fitness is not new in the financial services arena, but perhaps unsurprisingly, it’s a concept that has been applied most enthusiastically by providers of health and life insurance, who can trace a direct link between the health of individuals and the likelihood that they will claim on a policy. Vitality’s own Healthy Living Programme was originally developed in support of its life and health products.
Other insurers offer similar schemes. For instance, Aviva will calculate a so-called Q score for its customers – essentially determining how fit and healthy they are when compared to their peers of the same age and gender. By undertaking a fitness programme designed to improve their Q Score, policyholders can earn discounts on their premiums. Similarly, AXA offers discounts on health insurance to non-smokers who agree to take part in its health plan.
Meanwhile, those who are seeking payback for a long-term commitment to saving can look to the ISA tax-free savings scheme. For instance, the Lifetime ISA, introduced by the (then) Chancellor George Osborne incentivises a long-term commitment to investment by adding a 25% bonus every year for those who continue to save. This benefit continues to the savers 50th birthday. Those who save the maximum of £4,000 a year can, thus, look forward to a £1,000 bonus. There is a catch. To take advantage of a Lifetime ISA, you must be under 40 and be saving for residential property or retirement. The bonus is lost if you draw down cash for other reasons.
In seeking to incentivise saving – even through a package of measures – Vitality is facing some mighty headwinds.
For one thing, we Britons are saving a lot less than we used to. In 2017 the UK personal savings rate ( essentially the percentage of household income saved) fell to a record low of 3.9%, according to Office for National Statistics figures. It currently stands at over 5.0% but that is much lower than the 9.7% peak in 2015.
What’s more, one in four UK adults have no savings whatsoever, according to a report published in March by the Skipton Building Society and one in ten of the 2,600 people polled admitted they were terrible with money. A survey published this month by the Financial Conduct Authority was less gloomy, finding that only one in ten of the population had no savings, but that figure rose to 16% and 17% in the North East and North West.
So the question is, how can you nudge people to save more, especially for retirement? Arguably the biggest nudge was automatic enrollment into workplace pensions, which works on the assumption that once an individual is part of an occupational scheme, he or she is likely to remain a member.
As for encouraging people to save above and beyond the workplace pension – maybe benefits in return for behavioural changes will help encourage good habits.