- UK household saving ratio is forecast to reach lowest level since 1963 – 3.8%
- Almost two thirds of 35-44 year olds “not confident” they are saving enough for their future
- Generational divide: baby boomers feel most “confident and supported” generation
The UK household saving ratio is forecast to fall to its lowest level of around 3.8% in 2016, according to a new report commissioned by online investment manager Nutmeg. Baby boomers are the most comfortably-off generation when it comes to saving for the future. While 63% of over 55 year olds feel ‘confident and supported’, only 36% of 35-44 year olds feel the same way.
The report, produced by the Centre for Economics and Business Research (Cebr) and drawing upon a survey from polling company YouGov, found that 61% of those aged between 35 and 44 are not confident they are currently saving enough for their future. This compares to only 45% of baby boomers.
The Cebr and Nutmeg intergenerational index compares the positive attitudes towards saving and positive savings behaviour of each generation. A higher score indicates better combined attitudes and behaviour.
Marked differences to savings prospects across generations
Twice as many baby boomers (16%) are “very confident” about their savings, compared to only 7% of those aged between 45 and 54. Equally, while only 24% of over 55s are worried about their short and long term finances, this figure rises to 37% in the 45-54 year old bracket.
Gap unlikely to change any time soon
The generation gap in attitudes to savings is unlikely to improve in the near future. While current savings levels in the UK are expected to grow from £50.5 billion in 2016 to £74.4 billion in 2026, savings levels will remain far below the 2009 peak of £104.8 billion. After adjusting for inflation, current household savings levels will remain below the peak level of 16.3% in 1992, when those in the baby boomer generation were in their late 20s to early 40s.
Trends in prices and deposits suggest that housing is becoming increasingly unaffordable
Unsurprisingly given the decline in housing affordability set out in the report, 21% of 25-34 year-olds feel “let down a great deal” by the current housing market, against only 11% of baby boomers. A comparable number of 25-34 year olds (26%) do not expect to be able to afford a deposit, compared to 35% of those in their 30s.
The percentage never expecting to have a deposit notably increases to 59% for those aged between 45 and 54. Only 18% of those aged in their mid-30s to early 40s expect to have a deposit ready in their 40s, against 31% never expecting to have a deposit.
Company pension enrolment does not appear to be translating into less pressure felt to save more for a pension.
39% of respondents did not feel any more or less pressure to personally contribute more to their pension following enrolment on a company pension scheme.
44% of those aged between 45 and 54 feel there is no change in pressure to increase personal pension contributions. However more feel under greater pressure to increase personal contributions following enrolment (17%) than under less pressure (5%). This gap is greatest for those aged between 25 and 34, where 22% felt under greater pressure against 8% who felt less.
David Whitaker, Cebr Managing Economist, says: “Our report shows a clear generational gulf in savings attitudes and behaviour. After expenditure, baby-boomers on average have more income left over to save. They are also less likely to save nothing on a monthly basis, and more likely to know how much they are saving. With around 48% of baby boomers saving 30% or more of their post-tax income in 2014 – against 37% of 35-44 year-olds – it is not surprising that this generation are much more confident that they have saved enough for the future.”
“We expect UK households to save a smaller portion of their disposable income than in previous decades. This is likely to pose difficulties for the younger generations, with the falling ratio coinciding with a higher expected dependency ratio and reduced housing affordability. 29% of those aged between 35 and 44 reported in our survey that they want to save but cannot afford to do so.”
“Younger generations have good reason to feel let down on housing – ONS data suggests that outright home ownership is becoming increasingly unaffordable. The average house price was around three times the average income of new mortgage holders between 1969 and 1990. By 2014 this ratio had increased to 4.5, and we forecast it to increase further to 5.7 by 2028.”
Nick Hungerford, CEO of Nutmeg, says: “At long last, with the Work and Pensions Committee’s inquiry, intergenerational fairness is getting attention it desperately deserves. But far more action is needed. We need government action to help generations of people caught in an affordability trap. Excellent initiatives such as Help to Save and the Lifetime ISA need to be developed. Individuals have to act too. Amidst stagnating wages and rising housing costs it is hard to save, but getting on the investment ladder is the best way to grow your wealth.”
“Our message, when it comes to saving and thinking about your financial future, is save as often as you can and start as early as possible, even if it’s in small amounts. And if you don’t want to do the research and work required to invest or finding the best returns, let someone else do it for you. New technology – such as fractional share trading – means that at Nutmeg you get the benefits of a fully managed portfolio even if you are investing £500.”
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