Why Brits don’t save for their pensions but Malaysians do

Only 39% of people in the UK are saving for their retirement, this compares to 84% in Malaysia.

Why do so few people in the UK save for their future?

Imagine a wealthy, powerful individual – let’s call him David C. He will save for his pension regardless, but because he is influential he can decide whether there is a state pension or not.

If he decides that there shouldn’t be a state pension then there is a strong incentive for more people to save for their retirement because if they don’t they will have nothing. You might think that this would be the best outcome for David as he will still have his pension but not have to contribute to anyone else’s.

However, David is worried that if there are too many people unable to save for a pension, even if they want to, then lots of people will have nothing to live on in retirement. This may lead to divisions in society and potentially riots and civil unrest which will in the long term make David’s retirement worse, and in the short term means he will lose the next general election. This is a really bad outcome for him so he keeps a state pension provision.

Once this happens then there is very little incentive for lower paid workers to save for their retirement as they can rely on the state pension and any savings they can afford will make a minimal difference.

This is why pension savings rates are so low in the UK.

But why is Malaysia so different?

Malaysia has no state pension provision but there are stronger family ties, so children are expected to look after their parents. This means that the risk to leaders of unrest and losing power is tiny so it does not affect their decision-making. They can safely have no state pension and therefore there is a much stronger incentive to save. This results in the much higher savings rates.

Much is made in the UK of trying to get people to save for their retirement but the problem is deeply rooted in the breakdown of the family unit which means there is no alternative support for the elderly apart from the state. In fact, we have the opposite situation where parents who are at or near to retirement are still having to support their children who are well into their 30s.

Today’s takeaway: Social factors will influence people’s decisions, you need to consider them in many situations.

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