- Almost half the population had less than £1,500 in savings post-pandemic, according to the latest Family Resources survey
- Single people and single parents are most likely to have low or no savings
- The pensions gap means single female pensioners have less than male pensioners
- Only a quarter of the population has an ISA – a figure that’s expected to rise as interest rates have risen
- Figures reveal chronic levels of undersaving among self-employed
Laura Suter, head of personal finance at AJ Bell, comments:
“The fact that half the population had less than £1,500 in savings post-pandemic, before the current cost of living crisis even hit, shows just how precarious some household’s finances will be by now. The Government data, which is typically out of date and is for the 2021-22 tax year, shows that one in five households had absolutely no savings, while another 29% had less than £1,500 in savings.
“Since these figures were collected we’ve seen inflation soar, interest rates climb, rents and mortgage costs increase and energy prices go through the roof. The cost of living will only have compounded these figures, with many having to dip into their savings or entirely exhaust them to keep up with rising bills. The update for the current financial year is likely to paint a far more troubling picture of the nation’s financial resilience – with many more falling into the ‘no savings’ bracket.
“If we pick apart the data we can see that the single-person penalty really impacts finances – with those living alone facing higher costs and so having less in savings. Single men with no children were most likely to have no savings, while a quarter of single women without children have no financial buffer fund either. Single parents are in the shakiest financial situation, with 78% having either no savings at all or less than £1,500. They also face the high cost of childcare and housing coupled with only having one income, which means these families are most likely to have very uncertain finances.
“On the flip side, pensioners are most likely to have more cash stashed away. These people will have had their whole working lives to build up their savings, meaning many have far more financial strength. More than a third of pensioner couples have £30,000 or more in savings. However, there is a large divide among pensioners, with a quarter of pensioner couples having either no savings or less than £1,500.
“Female pensioners are also more likely to have less money put away, with the pension gap and gender savings gap hitting this group. While a quarter of single male pensioners have £30,000 put away, that drops to a fifth of single female pensioners. Female pensioners are also slightly more likely to have no savings or under £1,500 than their male counterparts.
“We know that the gender pay gap, more part-time working and career breaks all impact women’s wealth. And with women more likely to live longer they actually need to put more away than men going into retirement – as they will spend more years retired, on average.”
Tom Selby, AJ Bell head of retirement policy, comments on pension participation among the self-employed:
“These figures once again lay bare the chronic levels of undersaving we see among the self-employed, with fewer than one-in-five contributing to a pension in 2021/22. This is a pensions ticking timebomb and without urgent action from government, there is a serious risk millions of self-employed workers, who are not covered by automatic enrolment, will drift towards retirement disaster. While some efforts have been made to trial ‘nudges’ aimed at encouraging greater levels of retirement saving among this group of people, including adding a prompt to people’s tax return, it is hard to see such tweaks significantly moving the dial.
“In the meantime, if you are self-employed and not saving for retirement, you should seriously consider what this might mean for your financial future. It is possible to build a healthy pension pot to deliver the standard of living you want in retirement, with pension tax relief providing a crucial upfront boost and investment growth being tax-free too. The Chancellor’s decision to raise the annual allowance to £60,000 and abolish the lifetime allowance altogether makes pensions even more attractive.
“If you are a basic-rate taxpayer, the Lifetime ISA represents an attractive alternative option, as the upfront bonus of 25% is exactly the same as pension tax relief, albeit you can only receive this bonus on £4,000 of money paid in each tax year. Your LISA fund can then be withdrawn tax-free at age 60 or for a first home provided it is worth £450,000 or less. You can also access your money early if you need to, flexibility that may appeal to the self-employed, although early withdrawals will be subject to a government-imposed 25% early withdrawal charge – effectively a 6.25% penalty.
“Whichever option, or combination of options, you go for the key is to save as much as you can, as early as possible. Setting up regular contributions and increasing these as your salary goes up is a useful way to ensure you keep growing your pot while also maintaining your standard of living.”
Source: ONS, pension participation