22 July 2024
If you are covering the latest households’ finances and saving data from the ONS, please see the following comment from Holly Tomlinson, financial planner at Quilter:
"The latest ONS data reveals significant trends in UK households’ finances and savings. The UK household saving ratio peaked at 27.4% in Quarter 2 (Apr to June) 2020, primarily due to the suppression of consumption opportunities during the coronavirus pandemic. This ratio plummeted to 6.6% in Quarter 2 2022 but has since risen steadily to 11.1% in Quarter 1 (Jan to Mar) 2024.
"These increases coincided with cost-of-living pressures, weak consumer confidence, and slower growth in household consumption. Estimates of the total value of excess saving accumulated by UK households since the start of the pandemic range from £143 billion to £338 billion (7.9% to 18.7% of household annual total resources). Unlike in the US, where accumulated savings have supported household consumption and economic growth, UK households have been reluctant to spend these savings.
"The rise in savings owes a great deal to lockdown savings, which many people, particularly those on above-average incomes, are still holding onto. The financial turbulence of the last few years, coupled with the cost-of-living crisis, has persuaded many people to hoard every spare penny, keeping it close to hand in case things got even worse. This means they haven’t spent their way through their pandemic savings and, in many cases, have actually built on them.
“However, the data do show that where excess debt is held, more people have chosen to pay it down. This is good to see given higher interest rates will be costing those with debt a considerable amount. Wherever possible, those with debt should look to pay it off, starting with those charging the highest rate of interest. However, once you have cleared your debts the next step will be to explore how best to structure your savings to ensure your money is working as hard as it can and is held in the most tax efficient way possible.
“The cautious mentality adopted by many during the turbulent recent years means many are clinging onto their savings in cash. It is recommended to keep between three to six months’ worth of household outgoings in a cash savings account. The emergency fund should cover your rent or mortgage payments, utility bills, food shopping, and childcare, and should be accessible at a moment’s notice in case of a change in circumstances. However, holding much more than this in cash could mean you risk losing out in real terms, particularly if interest rates begin to fall as expected.
“Moving extra savings that you know you won’t need for five to ten years into a stocks and shares ISA would boost long-term financial health, especially later in life. In addition, paying into a pension brings tax relief, and because the money is invested rather than in cash, it has more opportunity to grow. Higher or additional rate taxpayers stand to gain even more as they benefit from tax relief at 40% and 45% respectively. While you must be certain that you will not need the money sooner than retirement given it will be locked away until then, investing your excess money in a pension for the longer term can go a long way towards ensuring you achieve the lifestyle you wish to have in retirement.
“Ultimately, what is the right thing to do with your excess savings will come down to your personal circumstances and financial goals, so seeking professional financial advice will help ensure you make the best possible decisions.”
