While the rising cost of essentials is the most common perceived threat to over-55s’ standard of living over the next five years, concerns over falling returns on savings have risen to the highest point in almost three years, Aviva’s latest Real Retirement Report reveals.
- Almost one in four (22%) over-55s view drop in return on savings as a threat to their financial health in next five years – up from 17% in Q2 2016 to the highest point in almost three years
- The rising cost of living is perceived as a threat by 45% of over-55s as inflationary warnings after Brexit persist
- Average variable ISA rates have fallen below inflation over the last three months1 with interest earned down 68% since 2012 from £444 to £1402
- Over-55s’ average unsecured debt levels up 15% since Q3 2015 to £1,904 with borrowing via credit cards and personal loans growing even faster
Almost one in four (22%) over-55s now identify falling returns as a threat compared to 17% in Q2. The last time concerns were this high was in Q1 2014 (24%), with this quarter’s jump coming against the backdrop of the decision by the Bank of England to cut the base rate in August from 0.50% to 0.25%.
At the same time, almost half (45%) of over-55s highlight the rising cost of living as their primary concern over the next five years. Following the UK’s decision to vote to leave the EU in June, the resulting fall in the value of the pound has led to an expectation that inflation will continue to rise next year and push up prices. The latest government Consumer Price Index data shows inflation reached a two-year high of 1.2% in November, with the Office for Budget Responsibility predicting it will continue rising to a peak of 2.6% – a level not seen since September 2013.
Table 1: Most commonly perceived threats to over-55s’ standard of living in the next five years
|
| Q3 2016 |
| Rising cost of living | 45% |
| Unexpected expenses (e.g. home repairs) | 33% |
| Serious illness | 31% |
| Rising inflation/state of the economy | 27% |
| Falling return on savings | 22% |
| Death of my partner | 16% |
| Running out of money/savings in retirement | 14% |
| Need to pay for care for me or my partner | 13% |
| Falling return on investments | 13% |
| Increase in taxes | 10% |
Falling returns on savings
The concerns suggest that, even if interest rates were to rise next year, there is an expectation that returns on savings won’t keep pace with the rising cost of living. Bank of England data shows that average interest rates on a variable cash ISA have fallen from 2.5% in Q3 2012 to just 0.7% in Q3 2016 and have been lower than inflation since September, for the first time since October 2014.¹
Aviva’s data highlights that although over-55s had £1,360 less in savings in 2012 (£17,750 in Q3 2012 vs. £19,110 in Q3 2016), they would have enjoyed £444 in annual interest in Q3 2012 if it was invested in the average cash ISA, compared to £140 today: just 32% of the 2012 figure2.
Not only do they receive less interest, over 55s also have less in their savings pots, with the total amount falling 6% annually (from £20,399 in Q3 2015 to £19,110 in Q3 2016).
However, typical monthly incomes have increased steadily over the last three years to their current level of £1,382 per month. With such a rise, two in five (40%) now cite current income as a source of their savings in Q3 2016, up from 34% in Q3 2015.
Aviva’s data suggests this has been supported by a rise in employment during later life: the percentage of over-55s receiving wages or other earned income in Q3 2016 was 40%, up from 38% in Q3 2015 and 34% two years previously.
Mounting unsecured debts
Despite the potential for falling interest rates to reduce the cost of credit, Aviva’s findings also highlight a worrying increase in the average level of unsecured debt held by over-55s, which has risen by 15% since Q3 2015. Debt levels now stand at £1,904 – up from £1,662 last year.
Credit cards remain the most significant source of debt with an average balance of £840, which has also risen by 26% since Q3 2015. However, personal loans – the second largest form of borrowing – have grown by 42% over the same period.
Table 2: Average amount of debt owed rises 15% in the last year
|
| Q3 2015 | Q3 2016 | Annual change |
| Credit cards | £668 | £840 | 26% |
| Personal loans | £456 | £648 | 42% |
| Hire purchase | £172 | £233 | 35% |
| Overdraft | £137 | £59 | -57% |
| Any other informal borrowing | £73 | £46 | -37% |
| Loans from family members and friends | £109 | £43 | -61% |
| Store cards | £22 | £32 | 45% |
| Doorstep lenders | £25 | £2 | -92% |
| Total unsecured debt | £1,662 | £1,904 | 15% |
Pension freedoms
Aviva has also tracked the plans of unretired over-55s since the Coalition Government announced the Pension Freedoms in 2014. Overall, awareness of the reforms remain unchanged with 86% stating that they were aware of the changes, up by only 1% from this time last year.
When looking at the perceived advantages of the reforms among over-55s, just 21% feel it would help them to supplement their income in retirement and 10% said they would use it to pay off their mortgage or other debts such as credit cards.
However, despite the flexible access given to over-55s to their pension savings, almost half (48%) of those who have not yet retired believe there are no advantages from the reforms, only down marginally from 51% in Q3 2015. The data also shows a slight increase in anxiety about having enough money to last for the whole of retirement: 14% were worried about this in Q3 2016, up from 12% a year earlier.
Rodney Prezeau, Managing Director, Consumer Platform, Aviva UK Life comments:
“2016 has been a year of seismic change and it is still unclear what the long-term impact of the UK’s decision to vote to leave the EU will be. What is clear is that those approaching retirement have heightened concerns for the future following the decision to cut interest rates in the summer and through a growing consensus that inflationary pressures may start to kick-in next year.
“Rising inflation and rising interest rates would be uncharted territory for many. The Bank of England base rate was last increased in July 20073 – more than 100 months ago. This brings new challenges for savers at a time when there are worrying signs of an increasing reliance on debt in later life.
“As we approach the start of a new year, it is important that people take time to seriously assess what wider macroeconomic changes could mean for them individually as they plan for the future, in order to ensure they start 2017 in the best possible position.”
Ends
Enquiries:
Aviva Press Office: Fiona Whytock: 07800 692299 or fiona.whytock@aviva.com
Aviva’s retirement spokesperson, Alistair McQueen, is available for comment/interview
Methodology
The Real Retirement Report is designed and produced by Aviva in consultation with ICM Research and Instinctif Partners. The Real Retirement tracking series referenced within this report has been running since 2010 and totals 25,990 interviews among the population over the age of 55 years, including 1,199 in October 2016 for the latest wave of tracking data (Q3 2016).
A median is described as the numeric value separating the upper half of a sample, a population, or a probability distribution, from the lower half. Thus for this report, the median is the person who is the utter middle of a sample. All figures in this report are medians unless otherwise specified and are referred to as ‘typical’ rather than ‘average’ (mean).
Sources:
[1] Average variable ISA rates from Bank of England Average Quoted Interest Rates (deposit rates, variable rate cash ISA, including unconditional bonuses). 2.5% and 0.7% are the average rate for Q3 2012 and Q3 2016.
Inflation rates from the ONS Consumer Price Index (see here)
Savings rates were lower than inflation in November, October and September 2016.
2 2.5% of Q3 2012’s saving pot (£17,750) is £444. 0.7% of Q3 2016’s saving pot (£19,110) is £140.
3 http://www.bankofengland.co.uk/boeapps/iadb/Repo.asp
Notes to editors:
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