30th November 2015
Pensioners are continuing to save large amounts of money but often in low-interest paying current accounts prompting fears it could hurt the UK economy according to a new report.
The annual amount saved by pensioners is around £48.7bn according to research by the International Longevity Centre and Prudential. They say research busts the myth of older people splashing their retirement cash on leisure and holidays.
The report, Understanding Retirement Journeys, reveals that from the age of 50 onwards, spending on most non-essential items begins a slow decline.
It suggests that with the exception of early retirement, retirement does not lead to more holidays or other leisure activities. Nor does retirement lead to a sudden splurge in eating out.
ILC-UK argue that excess savings in retirement could have adverse macroeconomic implications, pointing to excess savings relative to investment in Japan which has acted as a drag on economic growth. The think tank argues that if older people are saving, “we need to find effective ways of putting those savings to good use to help drive economic growth”.
The report finds that consumption falls during retirement with a household headed by someone aged 80 and over spends, on average, 43% less than a household headed by a 50 year old.
Many older households continue saving throughout retirement. Individuals aged 80 and over are saving, on average, around £5,870 per year. ILC-UK calculate total per annum savings made by those in retirement in the UK today of around £48.7bn. This equates to 2.8% of GDP. The majority of savings made by older people are sitting in low interest current accounts. On average, retirees think they have a 70% chance of leaving an inheritance of £50,000 or more.
Contrary to popular perceptions, retirement does not lead to more holidays says ILC-UK and by age 90+, watching television and spending time at home alone are the most common daily activities.
The ILC-UK has called for the introduction of a mass market mid-retirement financial health check and financial advice.
To respond to high savings levels by older people, ILC-UK argues that the financial services industry should consider how it can help retirees maximise customers’ returns on these savings.
The ILC-UK says the Government should develop a long-term strategy to harness the savings made by retirees to deliver increased investment and drive forward economic output.
Ben Franklin, head of economics of ageing at ILC-UK says: “In light of the pension freedoms, there has been much speculation about consumption needs in retirement and the types of retirement income products that might be required to meet these needs.
“Our research points to evidence of a “default retirement consumption path” where consumption falls lead to savings in later life. This implies people may need a combination of flexibility and security of income in retirement to support higher consumption earlier on while ensuring people are still able to afford their regular bills in later life.
Tim Fassam, head of public affairs at Prudential UK says: “By having a greater understanding of spending patterns in retirement, the rate at which older people save and their hopes to leave an inheritance, it becomes easier to help them plan financially for retirement.
“It points to financial advice being equally important in the latter stages of retirement as at the start, and of the need for our industry to focus beyond the point at which someone retires.”