10th December 2015 at 3:02pm
Pensioners are cutting down on the luxuries in favour of saving instead, a study by the International Longevity Centre (ILC) has revealed.
When new pension freedoms were first touted, the big fear was easier access to pension pots would give rise to a new band of cash rich retirees splashing out on luxury cars and even more luxurious lifestyles. We’d create a new breed of pensioner – a 50-something, with cash on the hip and a desire for the fast lane.
Well this has just not been the case going by the findings of the ILC.
Since the new legislation came into place back in April 2015 it looks like pensioners have cut down on spending and are now saving more – regardless of the size of their income.
This study by the ILC has shown retirees spend progressively less as they get older, with spending dropping 1.4 per cent for every year the head of household ages. This means a household of someone over 80 spends £131 a week less – excluding mortgage costs – than one headed by someone in their 50s.
And the average 80-year-old saves around £5,870 a year, while the total annual savings of the UK’s pensioners are around £48.7billion – equivalent to 2.8 per cent of GDP.
So the stereotypical idea that pensioners are splurging on holidays, cars and gadgets appear a myth, instead it would seem they are actually cutting back on non-essential spending when they retire.
Some would argue that it’s age itself that is getting in the way of taking part in certain recreational activities, which in turn reduces their expenditure. And yes, this could certainly account for some decline in spending, but surely not all.
The study also suggests that others may be “under consuming” because they want to be in a position to leave some sort of legacy for their loved ones. A typical pensioner thinks they have a 70% chance of leaving an inheritance of £50,000 or more to their families, say the ILC.
The savings gap
But what is clear is that when it comes to saving, Britain’s elderly pensioners now lead the way.
The average person aged between 70 and 74 saves £4,043 a year from their income while someone in the 40-44 age bracket puts aside an average of 41per cent less at £2,411.
Malcolm McLean, a former pensions adviser to the Government, described it as “very worrying” that younger generations were saving less than their older counterparts. He said: “This trend is reflective of the reality that over 55s are richer than young people can ever aspire to be. They’ve benefited from generous final salary benefits and now their state pensions are triple locked, so they can afford to put some aside. Young people have large rents and mortgages which they will spend years paying off.”
But Baroness Joan Bakewell, a campaigner for older people, put pensioners’ superior ability to save down to their frugal wartime upbringings. She said: “We grew up during war when you had to make the most of what you had. We saved elastic bands and pieces of string. If you do that in every aspect of your life, that equals big savings. Young people haven’t grasped this at all.”
When less means more
It’s encouraging to see that the ILC findings have put paid to these fears over pensioners blowing their pension pots and running out of money in retirement. It would appear these baby boomers are in fact “frugal not frivolous” – which is good news.
Yet what is conceivably less reassuring is that there appears to be such a savings culture generation gap. Perhaps younger generations could learn a thing or two from their older counterparts. Something we touched on recently in our ‘benefits of hindsight’ article.
The information in this blog or any response to comments should not be regarded as financial advice and is based on our understanding in December 2015.