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Frugal retirees ‘could damage economy’
Older people are saving their cash and spending less on holidays, leisure activities and eating, according to a report.
Research by the International Longevity Centre – UK (ILC-UK) and Prudential shows retirees 80 and over are collectively saving £48.7bn a year – equating to 2.8% of the GDP.
The majority of this money sits in low interest current accounts.
From the age of 50 onwards, spending on non-essential items begins a slow decline, with early retirees being the only exception to the rule.
A household run by someone 80 or over will spend on average 43% less than a household headed by a 50-year-old.
However, ILC-UK believes excess saving in retirement could have a negative impact on the economy, pointing to Japan as an example of how excess savings relative to investment has slowed economic growth. It argues that effective ways of putting retirees’ savings to good use could instead help drive growth.
In its report, the ILC-UK calls for the introduction of a mid-retirement financial health check and financial advice.
It also argues that the financial services industry should consider how it can help retirees maximise the returns on their savings, and that the government should develop a long-term strategy to harness the savings made by retirees to deliver increased investment and drive forward economic output.
Ben Franklin, head of economics of aging, ILC-UK, said its research points to evidence of a ‘default retirement consumption path’ where consumption falls lead to savings in later life.
“This implies people may need a combination of flexibility and security of income in retirement to support higher consumption earlier on while ensuring people are still able to afford their regular bills later in life.
“Striking the balance between flexibility and security will not be an easy task and will require financial guidance and advice throughout retirement,” he said.
Tim Fassam, head of public affairs at Prudential UK, said: “It [the research] points to financial advice being equally important in the latter stages of retirement as at the start, and the need for our industry to focus beyond the point at which someone retires.”
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