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Savings & investments to decline for high earners

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The amount saved or invested each year by households with an income of over £100,000 is expected to decline by 10% in 2011, new research has shown.

HSBC surveyed 1,000 UK consumers with a household income of over £100,000 and found that the average amount that will be added to the savings pot will decline from £20,314 in 2010 to £18,255 in 2011.

According to HSBC, last year the largest proportion of savings by high earners was invested into instant access bank and building society accounts (£4,732) followed by ISAs (£3,655) and fixed rate bonds (£2,160) The lowest proportion of savings was invested into commercial property (£302) followed by investment funds (£1,456), residential property (£1,670) and individual stocks and shares (£1,814).

HSBC reported that almost all types of savings and investment products will see a decline this year.

Richard Brown, head of savings and investments at HSBC, said that decline was a result of high earners being hit with a number of additional taxes in 2010, with the introduction of a 28% capital gains tax rate, the introduction of the 50% tax rate coupled with the removal of their income tax personal allowance and the withdrawal of child benefit, affecting their ability to save.

Brown said: “Despite widespread concern over rising unemployment and the VAT rise this month, it seems affluent consumers have decided to defer their savings for the time being, instead choosing to increase expenditure to maintain their lifestyles. “It will remain to see as the year progresses if this is indeed the correct decision,” he explained.

This year, HSBC has forecasted that investment into ISAs will be the only area to see an increase, of 8.4% from £3,655 in 2010 to an expected £3,961, most likely reflecting the increase in ISA allowance.

The largest decline in savings and investments vehicles for high earners in 2011 are expected to be in fixed rate bonds (-34.3%), unit trusts and investments funds (-27.5%) and commercial property (-23.2%). HSBC reported that those earning between £100,000-150,000 will cut back twice the proportion of savings than those with an income of over £150,000 in 2011.

Their contribution to savings and investments is expected to decline by 12.1% compared to a decrease of 6.1% for those earning over £150,000. Households in the £100,000-150,000 income bracket will increase their savings into ISAs by 2.9% this year and all other savings vehicles will see a decline with commercial property (-35.6%) and fixed rate bonds (-35.2%) seeing the biggest decreases of over a third, reported HSBC.

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