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UK households raise savings by over 400 per cent in 40 years

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
07/08/2015

The value of household savings has grown by 452 per cent in real terms over the past 40 years, according to latest Lloyds Bank research.

The findings suggest that UK household savings – including deposits, pensions and shares – have grown at an average annual rate of 4.4 per cent every year since 1975. UK household savings now stand at an estimated £4.1tn, compared to £744bn then.

The average value of savings per household has increased 294 per cent from £36,989 in 1975, to £145,566 today. With the number of households growing by 40 per cent over the period, this increase is not as notable as the overall rise in the value of household savings.

In this time real household income per head has risen by 130 per cent. The value of deposits held per household has more than doubled, from £21,070 to £48,906.

There are however considerable differences in the value of savings – 36 per cent of UK households have no savings, and a further 13 per cent hold savings and investments of less than £1,500 in value.

The proportion of income saved by households averaged 13 per cent in the twenty years to 1995, against a backdrop of relatively high interest rates, particularly in 1979 and 1992. The household saving ratio peaked at 16.4 per cent in 1992.

The saving ratio declined rapidly during the 2000s, fuelled by rising levels of consumer spending and borrowing. Lower interest rates and greater economic stability before mid-2007 also reduced the perceived need for households to hold precautionary savings. It fell to a low of 5.5 per cent in 2008, but rebounded strongly a year later, reaching 9.3 per cent. Today, it stands at 6.0 per cent.

The value of deposit based savings has grown by 226 per cent in real terms since 1975, increasing from £424bn to an estimated £1,381bn in 2015. The largest growth in deposit savings came in the two decades to 2005, with a rise of 121 per cent.

Pensions

Household savings held in the form of pensions have grown almost sixteen fold from £123bn in 1975 to £1,944bn today. Pensions accounted for 54 per cent of the overall increase in households savings over the period (£3,365bn).

The value of pensions grew by 272 per cent in the decade to 1985. Over the past 40 years, the annual growth rate has been on average 7 per cent – faster than for any other form of savings. The importance of private pensions has grown sharply over the period; in 1975 they accounted for for 17 per cent of total household savings, today 47 per cent.

Shares

In the period to 1999, the value of shares held by households grew sharply, rising by over 482 per cent. Most of the increase occurred over the period between 1982 and 1993, coinciding with the privatisation of a number of public utilities – such as British Telecom, British Gas, water and the electricity industries – and the falling costs of buying shares. During this period, the proportion of households owning shares doubled to 20 per cent.

However, in 2015 the value of shares held by households is 32 per cent below the 40 year peak achieved in 1999, when prices in dot.com shares collapsed. Turbulence in the equity markets has contributed to a shrinking in the value of shares as a proportion of total household savings from 35 per cent in 1999 to 19 per cent in 2015.

“The UK savings market has seen a dramatic shift over the last 40 years, with increased retail competition, the rise of digital banking and a greater emphasis on private pensions and “tax free” savings,” said Philip Robinson, Savings Director at Lloyds Bank.

“Despite witnessing three recessions during the period, in addition to rising levels of consumer spending and borrowing, real household savings have grown annually by an average of over 4 per cent and we would expect this to continue over the next few years.”