The UK urgently needs to establish a national culture of saving for later life. Just as so many of us save to get on the property ladder, abrdn believes there is equal need for a ‘Savings Ladder’ – with clear steps that can help people on their journey to a happy, comfortable retirement.

That’s why the firm has launched a new ‘Savings Ladder Index’ to track changes over time in how Britons are thinking about saving and investing for the future – as well as how much they are saving and investing and the weighting they give to property wealth vs pensions wealth.  

The index will measure the country’s overall ‘Propensity to Save and Invest’ every six months by looking at people’s ‘Propensity to Save’, their ‘Propensity to Invest’ and their outlook for the economy – generating a score for each. The scores consider factors including how well people understand savings and investments, their risk tolerance, and their confidence in taking out and managing financial products.

 

Britons betting their house on the future

The British are said to be obsessed with home ownership. Turn on the television, and you’re likely to come across a property programme. Open a newspaper and it’s the same story, countless articles about the future of house prices or the best locations for buying a home. An online browse, meanwhile, quickly reveals an endless list of sites that promise to help you grab a bargain, get the best mortgage, and make a fortune renovating your home. All this attention reflects and reinforces the idea, embedded in many Britons, that home ownership is central to their financial lives.

Governments of all political hues have helped spur the UK’s love affair with property. From stamp-duty holidays to mortgage support schemes, an array of policy tools have been devised and deployed to ensure the housing market is supported. Moreover, when people sell their main home, they don’t have to pay any tax on the capital gains – unlike many other investments.

Little wonder, then, that many Britons see buying property as the perfect vehicle for achieving financial freedom, often at the expense of all else, as is evident in new research commissioned by abrdn.[i]

 

Putting all the eggs in one basket

The results of abrdn’s survey reveal that nearly half (48%) of the UK population think property is a better long-term investment strategy than a pension. Only one in six people (16%) think pensions are a better investment option, with the rest undecided or not persuaded by either choice. Those aged 18–34 (53%), those living in London (56%), those on incomes of £50,000 or more (53%), and those who own their own home (53%) are even more likely to favour property over pensions.

Property and pensions aren’t, of course, mutually exclusive, but the tendency to favour property over pensions feels like a collective industry and policy challenge.

Our research also found that property is the long-term end game for a quarter (24%) of all British savers, whether they’re saving for a house deposit (9%), renovations (8%) or to help children/grandchildren onto the property ladder (7%).

 

Homeownership increasingly out of reach

However, there are dangers in this narrow focus on property to achieve financial well-being. For one thing, not everybody is able to get on the property ladder, and it’s getting harder to do so. The Resolution Foundation estimates that it now takes a young family 14 years to save for a deposit, up from eight years in the 1990s.

Many young people now rely on the ‘Bank of Mum and Dad’ to help them gather a deposit. Parents put up around £17 billion each year to help their children, according to the Institute for Fiscal Studies, with property the leading reason.

However, the Bank of Mum and Dad can’t help everyone, and it may itself be at growing risk of default as more and more people find themselves either renting or still paying off a mortgage in retirement.

Our research found that 19% of all 35–54-year-olds not on the housing ladder think they’ll never own their own home, and 18% of those aged 55+ and not on the housing ladder think the same.

The cost of home ownership also has implications for mortgage holders. According to the Institute for Fiscal Studies, 83% of people with mortgages are still in employment aged 55–65, compared with 57% of people who own their home outright. While there could be myriad other reasons, it seems likely that many carry on in paid work due to mortgage commitments.

At the same time, retirement affordability tools, of which the Pension and Lifetime Savings Association’s Retirement Living Standards is the industry benchmark, assume outright home ownership. That may become less of a norm for future generations, given the massive structural issues facing the housing market.

Private rental prices in the UK, meanwhile, increased by 6.1% in the 12 months to October 2023, according to the ONS – the highest annual percentage change since this UK data series began ten years ago.

 

Climbing the investment ladder

Since so many people are now unable to get on the property ladder, another means to allow savers to secure their financial futures is clearly needed. The challenge lies in persuading them that investing their savings, rather than hoarding them in cash, is a viable alternative route.

There’s certainly a body of evidence that points to the benefits of starting to invest as early as possible, and continuing to invest regularly, so that ultimately savers have the means to deliver the retirement they want and deserve.

Albert Einstein articulated it best, reportedly describing compound interest as the ‘eighth wonder of the world’, to explain how returns can snowball over time. The stock market has the potential to do much of the heavy lifting for us over the long term. With dividends stripped out, the FTSE All-Share is up just 27.8% over the 30 years to 31 December 2023, versus 258.6% with dividends reinvested, even when factoring in inflation.[ii]

Our first ever Savings Ladder Index has provided clear indications of where policymakers should focus their attention if they want to solve our long-term savings crisis. abrdn is pleased to be promoting improved financial literacy and will be producing regular updates on progress (or otherwise) in tackling the issue, as measured by our ongoing Savings Ladder Index.

Learn more about our index’s methodology and proposals to grow a savings and investing culture in the UK. 

[i] Research was conducted on behalf of abrdn by Opinium research between 29 December 2023 and 3 January 2024, amongst a nationally representative sample of 2000 UK adults.

 

[ii] abrdn, using Haver Analytics, with returns adjusted for inflation using the UK Consumer Price Index. Past performance is no guide to the future. The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested.