Demographics and saving

The most recent report by TheCityUK’s Independent Economists Group discussed the implications for the financial and related professional services sector of long-term demographic change.

Demographics and savings
Source: Office for National Statistics.

Naturally, in light of an ageing population, saving was a key theme; the report noted that the industry will be affected as individuals “face increasing challenges related to pension savings and long-term care”.
Data from the Office for National Statistics show that on account of relatively slow wage growth relative to expenditure growth, UK saving has been on a downward trend since the spike in 2008-09 in response to the financial crisis and economic recession.

The ONS noted that at 4.2%, the saving ratio in 2015 was the lowest annual figure on record. That figure refers to the ratio on a national accounts basis, which, broadly speaking, reflects the difference between household income and expenditure. The difference between the two series shown in the chart above is that the national-accounts version includes what the ONS describes as “’non-cash’ items”. This category includes intangibles—for example, imputed rentals. The other measure of savings, shown by the ratio on a cash basis, excludes these non-cash items so is narrower and therefore seen as being more representative of households’ actual day-to-day position. 

Regardless of which measure is used, the data strongly reinforce some of the themes in TheCityUK’s research. For example, the Independent  Economists Group’s report noted that it is important for government policy to encourage pension saving, “because it encourages personal responsibility and reduces the need for individuals to rely on the state”. Of course, the financial services’ industry’s role in facilitating saving goes beyond pension provision and long-term saving. Our recent report on retail finance included recommendations on encouraging savings—for example, providing better information for customers, as well as new products that focus on wealth creation as well as wealth preservation.