One upside of lockdown has been that it has turned Britain into a nation of savers.
Unsurprisingly, staying at home has caused spending on non-essential items to plummet in recent months. Data from Aviva suggests that the typical UK household saved an average of £171 per week because of their reduced expenditure.
Some experts worry that, as the lockdown eases, Brits might fritter away these savings. So, if your household has been spending less, this might be a good time to think about putting money aside or increasing your pension contributions.
Studies suggest those aged between 50 and 64 could be saving almost £200 per week
There has been a renewed interest in household finances as a result of the lockdown. According to the Independent, there was a 28% increase in savings enquiries to financial advice firms during the initial months.
Due to the lockdown and the increased number of people working from home, household expenditures such as the cost of commuting, leisure, or eating out have dropped considerably. Estimates suggest that the British public are spending on average £17.9 billion less, per month, as a result of coronavirus.
The Chancellor has also helped the cost of eating out through the ‘Eat Out to Help Out’ scheme, which has subsidised the costs of millions of meals since it was launched at the start of August.
Data shows that the age group best able to take advantage of these savings are those aged between 50 and 64, who tend to spend the most money on transport and leisure. Estimates suggest members of this group could be saving up to £200 per week.
So, what should you do with this extra money?
If you have made savings during lockdown, one idea could be to boost your pension savings. Indeed, a study by Aviva has found that almost three-fifths of Brits were worried about not having enough money in retirement.
Minimum workplace pension payments may not be enough to retire comfortably
If you’re already paying into a pension, great. Auto-enrolment in pensions began in 2012 and are proving to be a success, with the Department of Work and Pensions reporting that a record 88% of employees were saving into a workplace pension by 2019.
The auto-enrolment scheme was created to address the serious lack of pension saving among many workers, particularly young adults. Around 90% of employees have remained in this pension plan after being enrolled, according to the Office of National Statistics, despite fears that many would drop out due to lost income during the pandemic.
However, many people who pay into an auto-enrolment workplace pension are only investing at the minimum level – currently set at 8% of your earnings. Your employer must pay at least 3% of this but can choose to pay more.
Although auto-enrolment is a good step forward, it is likely that contributing the minimum amount will not be nearly enough to retire comfortably.
If you’ve been saving money on your weekly expenditure because of the coronavirus, you could consider investing that money by increasing your pension contributions. In 2020/21, you can make contributions of up to 100% of your salary or £40,000 (whichever is lower) and still retain tax relief. This includes both contributions paid by you and contributions paid by your employer.
The increased payments from money saved during the lockdown may make a significant impact on your pension contributions and let you retire more comfortably than you might otherwise have.
Shop around for savings rates
If you are already maximising your pension contributions, or you have short-term savings aims that are a higher priority – maybe you’re saving for a house deposit, a rainy-day fund, or your child’s education – then you might be thinking about channelling some of the extra money you presently have available into a savings account.
However, since the Bank of England reduced the Base rate to 0.1% in March, finding a good savings rate has been harder than ever.
Research from financial analysts Moneyfacts has revealed that, in the first three months that the coronavirus pandemic impacted the UK economy, the average rate on an easy access savings account halved, from 0.60% available in mid-March 2020 to 0.30% in June.
Industry data which covers many banks, including the UK’s biggest high street names, found £176 billion, or more than a third of savers’ money, earns just 0.1% interest – that’s just £10 in interest for every £10,000 of your savings.
So, if you want to put aside some of your extra disposable income, it’s important to shop around.
Many banks are routinely now paying rates of just 0.01%. On a balance of £20,000, that’s just £2 in interest a year.
As of 26 August 2020, National Savings & Investment’s Direct Saver was offering an interest rate of 1% on savings from £1 to £2 million. If you transferred your £20,000 to this account, you’d increase your annual interest to £200 – a £198 increase over leaving it in a high street account at 0.01%.
Also, don’t forget your Cash ISAs when you’re shopping around for a better rate.
You can choose to transfer old ISA pots in full or just a percentage of them. Make sure that the new provider can accept an ISA transfer and it’s important to remember that your new ISA provider should be the one who handles the transfer.
If you withdraw your funds and seek to reinvest them, you will be subject to the rules surrounding new deposits. Your savings could lose their tax-free status as a result.
Get in touch
If you have found yourself with surplus income during lockdown and need advice on the best way of making this money work for you, please get in touch. Email email@example.com or contact your adviser on 020 3828 8100.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
Workplace pensions are regulated by The Pension Regulator.
The Financial Conduct Authority does not regulate NS&I products.