Value of UK household savings rises by over 450% during the Queen s 60 year reign

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1 NOT FOR BROADCAST OR PUBLICATION BEFORE HRS SATURDAY 2 nd JUNE 2012 Lloyds TSB has looked at the key trends and developments in the UK savings market over the past 60 years ( ). Data has been sourced from the Office for National Statistics, Moneyfacts and the Bank of England. Value of UK household savings rises by over 450% during the Queen s 60 year reign As we approach the Queen s Diamond Jubilee, new research by Lloyds TSB has looked at the key developments in the UK savings market over the past 60 years. The analysis starts a year before the coronation of Queen Elizabeth II at a time when the country was recovering from World War II and some rationing was still in place. Key headlines: 464% rise in the real value of UK household savings over the past 60 years. Savings now stand at an average of over 150,000 per household, including pensions, investments and deposit savings, compared with just below 50,000 in 1951 (at today's prices). Many, however, have little or no savings. Household savings recorded their biggest rise in value in the 1980s. Whilst savings fell in the 1970s in inflation adjusted terms. Deposit savings' share of total savings has fallen from 42% to 29% since Pensions and life insurance's share has more than doubled from 24% to 53%. Households have saved an average of 6% of their net income since the 1950s. The gross interest rate offered on no notice accounts has averaged 6.01% over the past 60 years. In real terms, savings rates averaged 0.29%. Savers clubs to investments funds: there have been significant changes in the UK s savings habits. Suren Thiru, economist at Lloyds TSB, said: "The UK savings market has undergone some extraordinary changes over the past 60 years, reflecting the changing way we live our lives. Today, the typical saver is very different compared to the 1950s with the vast majority of savers now viewing their nest egg as an investment rather than as something for a rainy day. This change in attitude is partly as a result of the substantial growth in personal wealth over the period. Looking forward, savings levels are likely to continue to increase as households look to improve their finances. Furthermore, an increasingly ageing population is expected to save more in the future due to the need to put more aside for retirement."

2 Total household savings The value of household savings including pensions, shares and deposit savings in the UK has risen by 464% in real terms 1 over the past 60 years. This is equivalent to an average annual rate of growth of 2.9%, comfortably outpacing the 1.6% per annum average rise in real earnings over the period. UK household savings now stand at 4,177 billion, representing a nearly six-fold increase from 741 billion in In per household terms, average savings have increased more than three-fold from 49,511 to 153,529 (in 2011 prices). (Table 1) There are, however, considerable differences in the value of savings with some UK households holding little or no savings. Almost one in three (30%) UK households have no savings (accounts and investments) and a further 19% hold savings of less than 1, Household savings recorded their biggest rise in value in the 1980s with a real increase of 115% between 1981 and The substantial rise in the value of pensions and life insurance held by households, caused in part by the changes to private pension provisions, was a key driver behind the strong performance of household savings during the decade. In contrast, the worst performing decade for real household savings was the 1970s when there was a 12% fall as high inflation eroded the value of savings. Over the ten years to 2011, real household savings rose by 7%; the second worst performing decade over the past 60 years. (Table 2) From Christmas clubs to investment funds: our changing savings habits In the 1950s, savings activity by UK households was mainly focused on saving for a special occasion as evidenced by the popularity of savers clubs, such as Christmas clubs and holiday clubs, and the greater use of organisations such as National Savings Committees. Although these clubs offered no interest, households saved an average of 2 shillings and 11 pence a week in savers clubs in , more than a fifth (21%) higher than the 2 shillings and 5 pence of savings made through the purchase of savings certificates and sums deposited in savings banks. Today, most households view savings as an investment in order to smooth future consumption with funds now most commonly held in financial institutions. This is reflected in the increasing popularity of ISAs. Since their introduction in April 1999, the number of cash ISAs has risen by 160% to reach 11.9 million in 2010/11. There have also been marked changes in how we save with a large share of savings transactions taking place remotely (i.e. online, by phone or by post). The rise of the single saver 60 years ago, savings was very much a family affair with men, typically seen as the main breadwinner, contributing most to household savings. The rise in both one-person households 4 from less than one in five households (19%) in 1971 to one in three (33%) in 2011 and greater personal wealth has led to greater independence when making savings decisions. Women now save more In the 1950s, women earned significantly less than their male counterparts therefore limiting their ability to contribute to the family savings pot. Today, female savers in the UK have an average savings balance equivalent to 40% of their gross annual earnings, almost double the proportion of earnings saved by men (23%) 5.

3 Savings instruments The value of deposit based savings 6 has nearly quadrupled (up by 290%) in real terms over the past 60 years; from 312 billion in 1951 to 1,218 billion in 2011 (in 2011 prices). However, deposit savings' share of the value of total household savings in 2011, at 29%, was nearly one-third lower than its 42% share in The 1980s saw deposit savings decline as a proportion of total household savings, falling from 40% in 1981 to 29% in This decline continued into the 1990s as interest rates started to fall, so that by the end of the millennium, deposit based savings accounted for less than a fifth (19%) of total household savings. However, over the past decade, deposit savings' share of total household savings has rebounded, reaching 29% in The popularity of ISAs and the significant decline in equity prices have contributed to the rising share of deposit based savings over the past ten years. (Table 1) Among the non-deposit savings instruments, pensions and life insurance 7 assets' share of total household savings has more than doubled over the past 60 years from 24% in 1951 to 53% in The changes to private pension provisions in the 1980s was a key driver of the rise, helping to lift pensions and life insurance's share of total household savings from 33% in 1979 to 48% in In contrast, the poor performance of equity markets over recent years has shrunk the value of equity savings. As a consequence, equities have fallen as a proportion of total household savings from 23% in 2000 to 13% in Proportion of income saved Households have saved an average of 6.2% 8 of their net income over the past 60 years. The household saving ratio was highest in the 1970s at an average of 8.9% between 1971 and 1981 and lowest during the 1950s (average of 1.2%). In 1951, the household saving ratio was negative, at -2.0%, and remained below 2% for the remainder of the decade. The proportion of income saved by households grew strongly through the 1960s and 1970s as interest rates increased to combat high inflation, reaching a 60 year high of 12.2% in 1980 with official interest rates at 14%. The consumer debt boom and relatively low interest rates that characterised the 'noughties' saw the household saving ratio decline during the 2000s to a low of 2.6% in The saving ratio has recovered since 2007 to reach 7.4% in 2011 as households have sought to bring their finances onto a sounder footing. (Table 3) Households save more during recessions The historical peaks in the saving ratio have been during, or very close to, periods of recession. The household saving ratio reached a 60 year high of 12.2% in 1980 when the UK economy was in recession. Savings rates Over the past 60 years, the gross interest rate offered on no notice accounts has averaged 6.01%. In real terms, savings rates averaged 0.29%. By decade, real savings rates were highest in the 1980s, averaging 4.31% between 1981 and In contrast, the average savings rate in the 1970s was negative (-3.97%). (Table 4)

4 Ends Chart 1: UK Real Household savings*, bn 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, *Figures rebased to 2011 prices. Source: Lloyds TSB, Thomson Datastream Table 1: Real Household Savings, Pensions and life insurance ( bn) Total Household Savings ( bn) Deposit savings % of total household savings Deposit based Shares savings ( bn) ( bn) % ,028 29% ,192 22% ,053 40% ,053 2,262 29% ,060 3,908 23% , ,219 4,177 29% Total % change ( ) Average Annual % change Source: ONS and Lloyds TSB estimates. All figures rebased to 2011 prices.

5 Table 2: Change in Real Household Savings by decade Total Household Savings % % % % % % % Source: ONS and Lloyds TSB estimates. All figures rebased to 2011 prices. Table 3: Household saving ratio, Household saving ratio % % % % % % % Source: ONS Table 4: Real Rates on Savings in Instant Access Accounts, Instant access savings rate** (%) Retail price inflation (%) Real instant access savings rate (%) Source: Moneyfacts ** Average savings rates on instant access and no notice accounts and represent the average rate of interest paid at different investment tiers up to 100,000. Gross interest rate. Editors' notes: 1 Monetary or nominal house price figures have been adjusted to allow for general price inflation by applying the retail price index (RPI), in line with standard practice. The RPI has been chosen rather than any other inflation measure because it is the longest running series. It also incorporates housing costs unlike the much more recent consumer price index /10 DWP Family Resource Survey. Households recorded as not having any savings will include those who refused to answer, or did not know the answer, to questions on savings and assets. 3 Data from the ONS's 2006 Family Spending Survey 4 Earliest available data 5 Based on Lloyds Banking Group and ONS data

6 6 Refers to 'currency and deposit' component of the ONS measure of a household's total financial assets 7 Refers to 'insurance and technical reserves' component of the ONS measure of a household's total financial assets 8 Measured by the household saving ratio (see below for details) This research has been compiled by analysing statistics from the Office for National Statistics (ONS), Bank of England, Moneyfacts and Datastream. The background to the changing savings behaviour and social trends was sourced from '50 Years of Saving: Yesterday, Today and Tomorrow', a research report for National Savings and Investments (July 2007). Value of Household savings Financial assets (ONS series code NNML) for the period 1957 to 2011 is from and the ONS. Figures between 1951 and 1956 have been estimated using the average annual growth rates. The currency and deposits component of financial assets has been used as a measure of liquid savings. As these figures include financial assets held by both households and non-profit institutions serving households (NPISH), an adjustment of 3% has been made to the official series to remove the NPISH element. This adjustment is based on ONS evidence. Household saving ratio The household saving ratio measures the proportion of gross disposable income that households save rather than spend. The savings ratio is gross savings as a percentage of total household income. The series is sourced from the ONS (code: NRJS). Savings rates Average savings rates on instant access and no notice accounts are sourced from Moneyfacts and represent the average gross rate of interest paid at different investment tiers up to 100,000. Social trends in savings The amount spent on savings in 1959 has been estimated using the 1957 family expenditure figure contained in the 2007 Family Spending Survey. These figures have been adjusted to represent 1959 prices using the ONS long run inflation series. ISA figures based on data from the HM Revenue and Customs (HMRC) data. 2010/11 figures are provisional. Household composition (England): Household composition data has been sourced from CLG: Table 402: oldestimates/livetables-households/ Press Office Contacts: Eve Speight, Lloyds TSB eve.speight@lloydstsb.co.uk / Charlotte Sjoberg, Lloyds TSB charlotte.sjoberg@lloydstsb.co.uk / Lloyds TSB is part of Lloyds Banking Group Tel: Website : "This report is prepared from information that we believe is collated with care, however, it is only intended to highlight issues and it is not intended to be comprehensive. We reserve the right to vary our methodology and to edit or discontinue/withdraw this, or any other report. Any use of this report for an individual's own or third party commercial purposes is done entirely at the risk of the person making such use and solely the responsibility of the person or persons making such reliance. Lloyds TSB all rights reserved 2012"