28 February 2021
There is no doubt that the Covid-19 Pandemic has had a negative effect on the living standards of millions of people. Unemployment has risen, nearly 10 million jobs have been furloughed, and millions of self-employed people have either received grants from the government or missed out on help altogether.
But alongside these negative effects, a separate group – often hidden in gloomy aggregate statistics - has seen an unexpected boost to their standard of living. This group has found their income largely unaffected by the Pandemic but has seen their expenditure drop sharply. Without actively choosing to do so, this group have ‘accidentally’ saved – in many cases thousands of pounds each – as a result of being locked down and unable to spend in the same way as before. The behaviour of this group in terms of how they use their accumulated savings and whether they increase savings on a long-term basis is crucial to the future of the UK economy.
For the first time, new research from LCP shines a light on these ‘accidental savers’, using a survey of 10,000 employees undertaken in the Autumn of 2020 to work out who they are, how many there are, and what they are likely to do with their savings.
The new LCP ‘On Point’ report: “Britain’s accidental savers – who are they and what are they doing with their windfall?’ finds:
- More than six million employees report that they have found it easier to save than normal during the Pandemic;
- Based on Bank of England estimates of increased savings just over the period March-November 2020, these six million employees are likely to have improved their net wealth by thousands of pounds, through a combination of reduced indebtedness and increased savings;
- Accidental savers tend to be on higher incomes, including those whose jobs allow them to work comfortably from home thereby saving costs on travel and other work-related costs; but significant numbers of young people have also become ‘accidental savers’, primarily through reduced expenditure on holidays and eating out;
- In most cases, these accidental savings have ended up in a bank account or short-term savings account – relatively little has been used to boost long-term savings such as pensions;
- Whereas social spending is likely to recover significantly once lockdown restrictions are lifted, a structural shift to more home working could lead to lower work-related spending becoming a permanent feature for some groups.
The paper argues that those who have benefited from a short-term windfall could make the most of this to improve their personal finances by:
- Reducing debt, especially high-cost borrowing;
- Building up a short-term savings buffer to provide security against future unexpected expenditures;
- Improve pension saving, especially where their retirement prospects are relatively modest.
The paper also argues that employers have a key role to play in helping to build knowledge and awareness among staff of the advantages of saving more, including promoting workplace savings schemes and incentive schemes to reward pension saving.
Heidi Allan, Senior Consultant and financial wellbeing specialist at LCP said:
“Whilst the Pandemic has led to a hit on household incomes for large numbers of people, there is also a significant group of employees whose household finances have improved in recent months. This is an opportunity for them to put their personal finances on a firmer footing by reducing debt and increasing saving. Employers will have a key part to play in ensuring that workers take advantage of this opportunity and do not simply allow these increased balances to sit in current accounts and gradually drift away”.
Steve Webb, partner at LCP said:
“As a nation, we have a problem of under-saving whether for short-term emergencies or for our retirement. There are few silver linings from the current crisis, but the emergence of a large group of accidental savers could be one of them. Many people who have built up balances have not yet committed them to long-term savings, and many pension schemes and providers do not make it easy for members to make one-off contributions. A concerted effort is needed to use this unexpected opportunity to create more of a savings culture, especially among those who may permanently benefit from reduced outgoings as a result of a switch to greater home working”.