"Those approaching retirement have heightened concerns for the future following the decision to cut interest rates in the summer and through a growing consensus that inflationary pressures may start to kick-in"
22% over-55s now identify falling returns as a threat following the decision by the Bank of England to cut the base rate in August from 0.50% to 0.25%.
At the same time, almost half (45%) of over-55s highlight the rising cost of living as their primary concern over the next five years. Following the UK’s decision to vote to leave the EU in June, the resulting fall in the value of the pound has led to an expectation that inflation will continue to rise next year and push up prices.
The latest government Consumer Price Index data shows inflation reached a two-year high of 1.2% in November, with the Office for Budget Responsibility predicting it will continue rising to a peak of 2.6% – a level not seen since September 2013.
Even if interest rates were to rise next year, there is an expectation that returns on savings won’t keep pace with the rising cost of living. Bank of England data shows that average interest rates on a variable cash ISA have fallen from 2.5% in Q3 2012 to just 0.7% in Q3 2016 and have been lower than inflation since September, for the first time since October 2014.
Not only are they receiving less interest, over 55s also have less in their savings pots, with the total amount falling 6% annually (from £20,399 in Q3 2015 to £19,110 in Q3 2016).
However, typical monthly incomes have increased steadily over the last three years to their current level of £1,382 per month. With such a rise, two in five (40%) now cite current income as a source of their savings in Q3 2016, up from 34% in Q3 2015.
Aviva’s data suggests this has been supported by a rise in employment during later life: the percentage of over-55s receiving wages or other earned income in Q3 2016 was 40%, up from 38% in Q3 2015 and 34% two years previously.
Rodney Prezeau, MD of Consumer Platform at Aviva UK Life, commented: “2016 has been a year of seismic change and it is still unclear what the long-term impact of the UK’s decision to vote to leave the EU will be. What is clear is that those approaching retirement have heightened concerns for the future following the decision to cut interest rates in the summer and through a growing consensus that inflationary pressures may start to kick-in next year.
“Rising inflation and rising interest rates would be uncharted territory for many. The Bank of England base rate was last increased in July 2007 – more than 100 months ago. This brings new challenges for savers at a time when there are worrying signs of an increasing reliance on debt in later life.
“As we approach the start of a new year, it is important that people take time to seriously assess what wider macroeconomic changes could mean for them individually as they plan for the future, in order to ensure they start 2017 in the best possible position.”
