What a difference a year makes. Some 12 months ago, the theme of the Interactive Investor Great British Retirement Survey was “I want to break free”.
But this year, Brits have become priced out of retirement, as the cost-of-living crisis bites and savings plans are cut or axed.
The Interactive Investor Great British Retirement Survey had 10,000 respondents and found the rising cost of living is now the UK’s top financial concern and a big worry for three-in-five (59%) people.
Of those most concerned about the rising cost of living, 73% of them say their financial situation impacts their mental health.
Overall, 65% feel that their financial situation impacts their mental health – rising to 76% for people in their 20s and 30s.
More than half (56%) of the population aged under 66 have had to curtail their saving, with 36% cutting back, and 20% stopping altogether. Young people’s savings have been hit particularly hard, with 64% of 22-34 year olds having stopped, or cut back, their saving.
The crisis is even affecting higher earners on £60,000 ($66,469, €68,410) or more. Almost as many of them are cutting back on their savings as those earning less than £30,000 (54% versus 58%).
Richard Wilson, chief executive of Interactive Investor, said: “Many people are struggling. There is a close link between wealth and health. What also emerges is the crucial role a strong healthcare system plays in enabling people to save, work later in life, and live a full retirement.
“Yet, we also see the threads of love and care that hold communities together. We see them in the large numbers giving up work to care for a parent, child, or spouse. We see them in the sacrifices lower-income households make to help children onto the housing ladder.
“We also see retirement outcomes being routinely compromised by just ‘not knowing’. Nearly one-in-four (24%) of the general population said they know nothing about pensions. In a world of pension freedoms, and after ten years of auto-enrolment, this is a clear policy failure.”
Social investment network EToro has found a similar trend for Brits’ cutbacks.
A third (33%) of UK retail investors cut back on their usual investments in Q3. Looking at the reasons for this, 19% are keeping back investment money to cover rising household bills, while 12% are building up an emergency fund.
Confidence was significantly dented in Q3 – with the number of UK respondents confident in their investments dropping to 60% from 73%. This decline in confidence is mirrored across several areas of life, with the number of UK retail investors confident in their future income and living standards also falling far, to 54% in Q3 from 81% a year ago.
The main driver of the confidence crisis among investors is the state of the UK economy – seen as the biggest risk to investment portfolios by 25%, while 21% see the potential for a global recession and 20% see rising inflation as the biggest risks.
However, looking ahead, only 24% plan to invest less than normal in Q4 – indicating that UK retail investors are feeling less bearish about Q4 than Q3. The data also shows that 76% plan to continue investing the same figure or more in the next three months.
Ben Laidler, global market strategist at EToro, said: “UK retail investors are facing a combination of harsh market conditions, rising bills and more punishing mortgage rates so it’s little wonder many have switched priorities.
“Confidence has unsurprisingly taken a real hit in the last year, yet it’s admirable that the majority remain positive, something which speaks to the resilience of this group. There may also be a silver lining to the drop in investor confidence as it can be an important contrarian indicator that often signals we are near a market bottom.
“If confidence levels are already very low then investors are less likely to be surprised by further bad news, and even a little bit of good news can go a very long way in driving renewed market interest.”
Helping the kids
Interactive Investor’s survey also found that the demands of the property market continue to place additional demands on retirement funds.
Many retirees are grappling with supporting their children. One-in-five (21%) have helped their adult children buy property by giving them money for a deposit as a gift; 6% have given them a loan, and a further 2% have acted as guarantors.
The gifts are generous – the average amount is £18,400. Some 17% of parents with a household income of less than £30,000 have given a gift, with the average sum given £15,500.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “One of the problems driving inflation is the shortage of workers in Britain. We cannot afford to have so many people forced to stop work because they, or a loved one, is ill. And the financial impact on these households can be horrendous and lasting.
“This is a time of life when many people have paid off the mortgage and start saving like mad to build their retirement pot. Instead, lots are forced to begin drawing from their savings early, making a huge difference to their retirement outcomes.”
Property retirement fund
Property was also another big theme for a survey by financial planning firm Saltus, which found high-net worth individuals (HNWIs) are relying heavily on their housing wealth as a retirement fund.
It surveyed attitudes of over 1,000 Brits with investable assets of over £250,000 and 84% said they would be using housing wealth to fund at least part of their retirement, with 70% planning to fund at least 25% of the cost.
The research revealed that younger people are the most likely to be relying on property to fund their later years, with just 7% of 25-34s saying they don’t plan to use any housing wealth to fund their retirement.
When asked what proportion of their retirement they plan to fund with housing wealth, 40% said up to 50%, while 30% said at least 75% – on average, respondents in this demographic plan to fund around half (49%) of their retirement using housing wealth.
On average, just 2% HNWIs said they plan for 100% of their retirement to be funded by housing wealth, but this doubles to 4% for 25-34 year olds and more than triples for the wealthiest respondents.
Of those with assets of £3m or more, 7% said their housing wealth will be the only source of funding for their retirement; on average, those with over £3m plan to fund most (54%) of their retirement using housing wealth. Interestingly, despite over 65s being the least likely to intend to use housing wealth to fund their retirement (19%), of those that do, a third (33%) plan for it to cover 100% of the costs.
Michael Stimpson, partner at Saltus, said: “The report shows that the majority of people intend to fund their retirement through some degree of housing wealth. While the temptation to fill gaps in pension pots this way is understandable, it is a fundamentally risky strategy. It depends on residential property continuing to retain its value or even rising in value, which is far from a certainty.
“There really is no substitute for careful financial planning. The best retirement plans are ones where people have been clear about their aspirations and have worked towards their goals in a careful and methodical way in the context of other demands on their spending and saving. It may not be an easy win, but it is the best way to retire in comfort and with peace of mind after a lifetime of hard work.”