Lloyds Bank

UK households raise their savings by over 400% in past 40 years

07 August 2015

  • Average savings per household has increased four-fold from £36,989 in 1975 to £145,566
  • Over a third of savings held in deposits, but proportion held in shares continues to fall
  • Sixteen fold increase in value of pensions drives growth in household savings

 

The value of household savings – including deposits savings, pensions and shares – has grown more than sixfold (452%) in real terms1 over the past 40 years, according to latest research from Lloyds Bank. This is equivalent to an average annual rate of growth of 4.4%. UK household savings now stand at an estimated £4.1 trillion, compared to £744 billion in 1975 in today's prices.

The average value of savings per household has increased fourfold (or 294%) from £36,989 in 1975 to £145,566 today. With the number of households growing by 40% over the period, this increase is not as dramatic as the overall rise in the value of household savings. In this time real household income per head have risen by 130%. There are, however, considerable differences in the value of savings with some UK households holding little or no savings. Over one in three (36%) UK households have no savings (deposits and investments) and a further 13% hold savings and investments of less than £1,5002 in value.

Over the past 40 years the value of deposits held per household has more than doubled from £21,070 to £48,906. This shows the extent to which savings have played in raising the financial wealth of households.  (See Table 3)

Proportion of income saved: the saving ratio has fallen significantly in last 40 years

The proportion of income saved by households4 averaged 13% in the twenty years to 1995 against a backdrop of relatively high interest rates, particularly in 1979 and 1992. On an annual basis the household saving ratio peaked at 16.4% in 1992.

The saving ratio declined rapidly during the 'noughties' decade, 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.

The saving ratio fell to an annual average low of 5.5% in 2008, but rebounded strongly a year later reaching 9.3%.

Household's savings ratio has fallen by almost two-thirds to 6.0% in 2015 after peaking in 1992.  (See table 2)

Deposit savings continues to grow, but has fallen as a proportion of total savings in the past 40 years

The value of deposit5 based savings has grown by 226% in real terms since 1975; increasing from £424 billion to an estimated £1,381 billion in 2015. The largest growth in deposit savings came in the two decades to 2005 with a rise of 121%.

The 1980s saw deposit savings decline as a proportion of total household savings, falling from 57% in 1981 to 38% in 1989. 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 27% of total household savings.

Since then deposit savings' share of total household savings has rebounded to some degree, to 34% in 2015. The popularity of ISAs and the significant decline in the value of shares in households' total savings (down by 15% - see below) have contributed to the rising share of deposit based savings over the past sixteen years.

Philip Robinson, Savings Director at Lloyds Bank, said:

"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.

“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% and we would expect this to continue over the next few years.”

Sixteen fold increase in value of pension's drives growth in household savings

Household savings held in the form of pensions3 have grown almost sixteen fold from £123 billion in 1975 to £1,944 billion today. Pensions accounted for over half (54%) of the overall increase in households savings over the period (£3,365 billion).

 The value of pensions grew by 272% in the decade to 1985. Over the past 40 years, the annual growth rate has been on average 7% - faster than for any other form of savings. The importance of private pensions has grown sharply over the period; in 1975 accounting for 17% of total household savings, rising to 37% a decade later and 47% in 2015.

Value of shares a third below their 40 year peak in 1999

Over the twenty-five year period to 1999 the value of shares held by households grew sharply, rising by over 482%. 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%.

However, in 2015 the value of shares held by households is 32% 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% in 1999 to 19% in 2015. 

-Ends-

Notes to editors:

For further information

Laura Brodkin

020 7356 2200 / 07786 335 317

Laura.Brodkin@lloydsbanking.com

Siobhan McCluskey

020 7661 4669 / 07795 611 179

Siobhan.McCluskey@lloydsbanking.com

 

Table 1: Real Household Savings, 1975-2015*

 

Deposit based savings (£ billion)

Shares (£billion)

Pensions (£billion)

Total Household Savings (£billion)

Deposit savings % of total household savings

1975

424

197

123

744

57%

1985

552

211

457

1,220

45%

1995

785

673

878

2,336

34%

2005

1,218

796

1,234

3,248

38%

2015

1,381

785

1,944

4,109

34%

Total % change

226%

298%

1481%

452%

 

Average Annual % change

3%

4%

7%

4%

 

Source: ONS and Lloyds Bank estimates.* All figures rebased to 2015 prices.

 

Table 2: Household saving ratio, 1975-2015

 Decade

Average Household saving ratio per decade

1975-1985

12.44%

1985-1995

13.19%

1995-2005

10.84%

2005-2015

7.49%

1975-2015

10.97%

Source: ONS

Table 3: Savings deposits per household, 1975-2015

Year

Deposits per household

1975

£21,070

1985

£25,021

1995

£32,213

2005

£46,369

2015

£48,906

Source: ONS

1Monetary - or nominal – household savings 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.

22013/14 DWP Family Resource Survey. Households recorded as not having any savings or investment will include those who refused to answer, or did not know the answer, to questions on savings and assets. Table S1.9

3 Refers to market value of pensions, that is the net value as found in statement of net assets.

4Measured by the household saving ratio (see below for details)

5 Refers to 'currency and deposit' component of the ONS measure of a household's total financial assets

Households as consumers comprise of groups of people sharing the same living accommodation who share some or all of their income and collectively consume certain types of goods and services, such as food, electricity or housing. This sector also includes the self-employed who are treated as producers. A smaller group of units within the household sector comprises of those living permanently in institutions with little economic autonomy, such as prison populations and members of religious orders living in monasteries.

Value of Household savings Financial assets

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 ONS calculates the primary income of households (i.e. wages, rental income, etc) and then adds benefit income and contribution payment with current taxes subtracted. This leaves gross disposable household income; a further adjustment is made for change in net equity of pension funds to provide Total household income (or resources) from which final consumption expenditure is removed, leaving gross savings. The savings ratio is net savings as a percentage of total household income. The series is sourced from the ONS (code: NRJS).

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 Bank all rights reserved 2015.

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