PensionsSep 1 2017

Royal London disputes idea of UK saving crisis

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Royal London disputes idea of UK saving crisis

Royal London has challenged data suggesting that UK consumers have embarked on a credit-fuelled spending binge that has resulted in savings rates plummeting to historic lows.

The insurer has published a report: ‘Has Britain really stopped saving?’ in response to the Office for National Statistics (ONS) savings ratio estimates for the first quarter of 2017.

The ONS figures for Q1 suggests a record low savings ratio of 1.7 per cent, falling sharply from 3.3 per cent in the fourth quarter of 2016 and 5.3 per cent prior to that. The savings ratio has fallen for seven successive quarters, according to the figures (see Chart 1).

But the report questioned the conclusions drawn from the data, noting the savings ratio calculation includes changes in pension fund values. 

It claims: “The fall in savings ratio over the period is almost entirely explained by changes in the rate at which individuals built up pension entitlements.”

Three main drivers were identified:

- A drop in company funding for DB schemes.

- A fall in rates of return on pension funds’ investments.

 - A rise in DC withdrawals since pension freedoms.

Royal London director of policy Steve Webb said the savings ratio was not necessarily incorrect, but held too much weight when analysing saving behaviours. 

Mr Webb said: “We so often now use the fall in savings ratio as shorthand for ‘Britain’s gone spending crazy’ and actually it’s nothing of the sort.”

He added: “The ONS is constantly reviewing its pension stats and although it’s not responsible for paper, it’s been helpful in putting it together. I’m very keen that policymakers, politicians and commentators don’t overreact to one number.

“One number, constructed in a particular way, does not tell you what’s going on in the economy.”

craig.rickman@ft.com