Inflation hits poor AND rich people’s ability to save

The cost of living crisis has forced more than half of workers to scale back or stop saving, and many say financial worries are affecting their mental health, a new report suggests.

Young people most likely feel too poor to set aside money, but almost as many higher earners – those over £60,000 – have recently changed their saving habits as lower-income earners.

High inflation is a top priority for many people, with 59 percent citing the cost of living as their top financial concern, according to research conducted by Interactive Investor last summer.

About 65 percent of those surveyed say their financial situation affects their mental health, rising to more than three-quarters of those under 40, it found. Again, there was no big difference between people of different incomes.

Separate research from Fidelity International supports the findings, in a survey that found 85 percent of adults are concerned about the current cost of living, 65 percent about their well-being and 55 percent about their mental health.

Source: Interactive Investor

Interactive Investor’s annual pension survey also reported:

– About 58 percent of people earning up to £60,000 have had to save less or stop saving altogether due to inflation, while 54 percent of those with £60,000 plus say the same.

– Nearly half of women over 65 live on the state pension alone – currently around £9,600 a year if you retire after April 2016 and qualify for the full amount – compared to 29 per cent of men.

– A quarter of women aged 56-65 have worked less because of their own ill health, compared to 17 percent for men, and 18 percent of women in this age group do so because of caring responsibilities, compared to 7 percent of men .

– About 21 per cent of retirees have helped their adult children buy property through a gift averaging £18,400, 6 per cent with a loan and 2 per cent by guaranteeing a mortgage.

– Of retirees with a household income of less than £30,000, 17 per cent have donated an average of £15,500 to help children climb the housing ladder.

“If most of us have spent our lives in blissfully uninteresting times, we certainly now feel the urge to recognize that those times are over,” said Becky O’Connor, head of pensions and savings at Interactive Investor.

“The speed at which individual and communal realities are shifting feels staggering; the adjustments we’ve all made and need to make are moving fast.

‘A worrisome constant is that while cuts are being made, often because there is no other option, people continue to overestimate their retirement income by an average of about 30 percent.

Source: Interactive Investor

‘The average amount people expect to retire is £21,730 – that’s £5,190 or 30 per cent more than our current retired respondents.

‘The danger is that the cost of living crisis will send us into a full-blown pension crisis. As saving becomes more and more approachable, it is critical that people, whenever possible, think carefully about how to balance medium- and long-term savings goals.

‘Pension contributions have a wonderful advantage: free money in the form of a tax reduction. Let’s keep them as much as possible so they can nurture us through life’s ups and downs.’

II’s fourth annual pension survey polled 10,000 people, but this time half were from a nationally representative cohort of British adults aged 22 and over.

The other half came from a survey of users and subscribers to newsletters on the Interactive Investor platform. In previous years, the latter formed the entire sample.