by Sue Whitbread
As restrictions on normal life reduced spending this year, new figures from interactive investor suggest that people were using savings to significantly boost their pension contributions, with the highest increase among those in their thirties and forties.
Between January and October 2020, there was a 34.7% rise in the average value of Self-Invested Personal Pension (SIPP) contributions compared to the same period last year among 30 to 39-year olds. There was another big rise in the average value of contributions of 18.3% between the same periods among 40 to 49-year olds, according to the data from ii, the UK’s second biggest DIY investment platform.
The average contribution rise among 50 to 55-year olds was smaller, at 6.8%. Meanwhile the youngest and oldest age groups contributed slightly less this year, with a fall in average contributions of 0.3% for those aged 18 to 29 between January to October 2019 compared with 2020 and a fall of 3.6% for those between 56 and 65 years old.
Becky O’Connor, Head of Pensions and Savings at interactive investor, said: “Our SIPP figures show a significant rise in contributions this year. This suggests that people in their thirties and forties were being sensible with the money they were saving during lockdown and squirreling it away for the long term.
“It’s positive to see these younger investors not afraid to up their investments and take advantage of lower stock prices after the initial crash. Whereas older groups, from this data, appear to have been more cautious.”
Households in the UK stand to save £748.70 over the course of the next month-long lockdown starting this Thursday, according to interactive investor’s analysis of ONS household spending data, with the biggest savings to be made from travelling less and not eating out.
Before the first lockdown, average monthly transport costs per household were £347.50, according to ONS data. The average monthly spend on restaurants and hotels was £222.30; monthly spend on package holidays was £131.70 and £47.20 a month was spent on sports, leisure classes and cinema, theatre and museum visits.
Increase in savings in first lockdown
Bank of England Money and Credit data showed a large rise in savings deposits during the second quarter, April to June, when lockdown measures during the first wave of COVID-19 were at their toughest. Although the amount saved dropped in the summer months, it had started to pick up again in September, with people favouring instant access deposit accounts.
The savings ratio – the amount saved as a percentage of income, reflected this, rising to a whopping 29.1 per cent in the second quarter of this year – more than four times its pre-pandemic level.
While higher instant access savings balances will help people to build up much-needed cash buffers, interactive investor urges savers to only keep what they need in instant access in these low interest accounts, and consider investing money that they don’t need to hand for the long-term.
The prospect of returns from investing at least beating inflation is higher over the long term than if all your money is kept in a savings account, where you would be lucky to generate interest of 1 per cent on balances.
Becky O’Connor, Head of Pensions & Savings at interactive investor, said: “Having emergency savings can give peace of mind that you can survive for a while should the worst happen and you lose your job, or you suddenly need to shell out for something big.
“How much cash to keep in instant access savings will depend on personal preference, although three to six months is a good aim.
“But people should take care that over the long term they do not unnecessarily lose money, in real terms, by keeping all their assets in cash.
“For money you don’t need for many years, consider investing in ISAs or SIPPs instead. This way, your money at least has a chance of growing enough to generate a real return.
“Adding to a pension means your money also benefits from tax relief and for younger age groups, hopefully decades of investment growth.”