What does milk have to do with saving? Guest blog from Ralph Frank




Milk is the base ingredient for a range of food products.  Similarly, money is the base for a range of savings products.  The way the milk is treated determines the ultimate form of the food product that emerges.  The same holds for money – the manner of investment drives the ultimate outcome.  It also helps to be clear what the desired outcome is at the start of the process, in order to ensure that the process most likely to lead to that outcome is followed from the outset.


A milkshake is often a tasty treat that takes a little time and effort to craft.  However, some planning in gathering the required ingredients followed by blending thereof delivers the desired outcome.  The milky starting point is transformed into a richer taste experience with limited endeavour.


A longer period of effort is required to turn milk into a wheel of camembert.  The planning process and ingredient list is longer than that required to make a milkshake.  The production process is also lengthier and fraught with greater risk of not achieving a tasty result.  However, the base ingredient of camembert is the same as that of a milkshake, namely milk.


Saving for the deposit on a first home is not a quick process, particularly in London.  However, the time horizon is likely to be considerably shorter than saving for retirement.  Further, the target deposit is likely to be a specific lump sum.  An amount linked to house prices would be a more effective hedge against house price inflation but such hedges are rarely available for a first home.  Savers also have limited tolerance, depending on their specific circumstances, to losses of capital as they save towards this lump sum amount.  The Government seemed to recognise the lump sum target and limited capacity for capital loss when it launched the ‘Help to Buy:ISA’ in the 2015 Budget.  The funds saved into this member of the ever-expanding ISA family have to be held in a HM Treasury-approved account at a bank or building society.  These accounts, to date, are all cash accounts which is consistent with little appetite for capital loss.


Saving for retirement is a long-term process, with the contributions potentially being invested for well over 50 years before being paid out in retirement.  The saver might well also have a degree of tolerance for volatility of the capital value of their savings during the investment period.  The long-term nature of the savings and tolerance for volatility will likely drive investment in assets other than cash.  Consequently, a retirement savings strategy is likely to look quite different to that of saving for a deposit on a first home at any point in time.


I am, consequently, at a loss as to how the Lifetime ISA (“LISA”) is being presented as vehicle to support saving for a first-home deposit and/or retirement.  The two goals are quite different and drive distinct investment strategies.  Both goals are already catered for by dedicated tax-advantaged savings vehicles in the UK too.  The addition of the LISA to the UK savings landscape doesn’t materially widen savers’ choices but it does add an element of confusion, particularly against the background of the ongoing roll-out of Automatic Enrolment.  Was widening of choice the objective of the LISA’s introduction?


It is possible to prioritise savings’ goals depending on life-stage as well as save for a number of goals, to varying degrees, concurrently.  The goal, tolerance to shortfall relative to the goal and related timeframe are key inputs into the strategy intended to achieve the goal.  Mixing goals and related parameters might well result in poor outcomes, missing all the goals.  It is conceivable that LISAs might result in first-home purchases suddenly being out of reach after a sharp market fall.  Similarly, savers might arrive at retirement having held high levels of cash in their LISA for long periods, with a corresponding impact on their later life wealth.  Would you like a pint of camembert to wash down your hamburger and fries or is a baked milkshake more to your liking?

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to What does milk have to do with saving? Guest blog from Ralph Frank

  1. Mike Otsuka says:

    People will need to decide, in advance, whether to use their LISA for a deposit on a house in the not too distant future or for retirement in the far future. If they choose the former, they should invest in a cash LISA. If they choose the latter, they should invest in a stocks and shares LISA. In either case, LISA is an attractive new option, given the government’s 25% top up.

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