a report for saga - cebr.com · pdf filea report for saga january 2015. contents 3 foreword by...

The wealth of the over 50sA report for SagaJanuary 2015

Contents3 Foreword by Lance Batchelor, chief executive, Saga

4 Introduction

5 Financial wealth

6 Physical wealth

7 Property wealth

8 Pension wealth

10 Wealth of the over 50s

12 Bibliography

12 Disclaimer, authorship and acknowledgements

2

3

Foreword by Lance Batchelor, chief executive, Saga It should come as no surprise that many people who have worked, saved and invested over a number of years have built significant wealth. Saving and investing for the future benefits individuals, families and, through the increased spending power of older consumers, the wider economy.

There is also clearly something fundamental and universal about the human family. Our instincts tell us that we would like our children equipped to face the challenges of the world, and there is no jealousy if they are enabled to do better in the world than we ourselves have done.

This report, commissioned from the independent Centre for Economic and Business Research (Cebr), shows that since the financial crisis started in earnest with the collapse of Lehman Brothers in 2008, the prudent approach of the over 50s means that they now hold a larger proportion of the UK’s assets, reinforcing their importance to both policymakers and business.

Contrary to the rhetoric of ‘The Pinch’ enthusiasts, the Saga generations have not commandeered an undue share of wealth in some conspiracy against the young, but have instead built it through the dint of their hard work. Of course, some of this wealth has been built through house price inflation. Many plan to use this accumulated wealth to support or pass onto their families.

Greater pensions freedom is something for which Saga has lobbied long and hard on behalf of the over 50s, so we were delighted when the Prime Minister first spoke about the proposed changes at a Saga event in March. It is great that Government has recognised that people, who have saved hard, can be trusted to make decisions about how they make the most of their retirement savings. This report estimates that the new pension freedoms that come into effect in April 2015 will mean that an additional £1.5 billion of pension savings will be unlocked in that year alone. It will be important for people to make the best use of these pension freedoms.

IntroductionThis report shows that since the financial crisis started in earnest with the collapse of Lehman Brothers in 2008, the value of over 50s’ wealth holdings has grown. The total value of over 50s’ wealth has been lifted by:

■ increases in the number of over 50s;

■ rising property wealth values, which have now surpassed their pre-crisis peak – although this has largely been driven by the London property market; and,

■ loose monetary policy and rising business confidence, which have lifted stock values and so raised the value of pension assets and (non-pension) financial assets.

In the second quarter of 2014, the over 50s held 68.3% of all UK household wealth1, 77.3% of financial wealth and 66.2% of property wealth2. This represents a modest increase in the share of UK assets held by the over 50s since the start of the financial crisis. In the third quarter of 2008 the over 50s held 67.6% of all the UK household wealth. At that time, they also held 74.4% of all UK financial wealth and 65.3% of all UK property wealth.

Despite the rising wealth holdings of the over 50s, it is important to note that the over 50s have also suffered from loose monetary policy. This has depressed bond yields and annuity returns meaning that returns on savings have declined for the over 50s and other UK savers.

In addition the report estimates that an additional £1.5 billion of pension savings will be unlocked in 2015 alone once the pension reforms come into effect in April. This could provide a significant boost to investment in the UK while also raising consumption growth, and have the potential to support growth in UK GDP and employment.

4

1All wealth calculations in this report are based on the wealth holdings of the mean over 50 household, multiplied by the number of households if necessary. All data are in nominal terms unless stated otherwise. The wealth estimates do not account for (i) Equivalisation – i.e. the consumption needs of different households or (ii) ownership trends – how the proportion of households owning at least some of a given type of wealth changes over time.

2All discussions of property wealth in this report are net of outstanding mortgage liabilities.

5

Financial wealthThe over 50s held £1,174 billion of the UK’s household financial wealth in Q2 2014, some 77.3% of all the financial wealth held by UK households3. Financial wealth held by the over 50s has increased modestly since the start of the financial crisis from £904 billion, or 74.4% of UK household financial wealth, in Q3 2008.

The total financial wealth of the over 50s has been driven higher, in part because of the rise in the population of over 50s – from 19.7 million in 2001 to 23 million in the 2012 – and recent increases in asset values. Bond returns were kept low by loose monetary policy and stock values fell in the immediate aftermath of the financial crisis. Cebr estimates that the value of the typical portfolio of UK financial assets declined by 6.0% between Q3 2008 and Q2 2009. However, the value of the UK’s typical financial asset portfolio has risen markedly in recent years. In particular, asset prices have been lifted by UK and global monetary stimulus and an accelerating UK economic recovery.

Although under 50s have also benefited from rising asset prices in recent years, their initially lower proportion of financial wealth holdings (prior to the financial crisis) means the proportion of UK financial wealth which they hold has declined even as asset values have risen. The under 50s’ share of financial wealth has fallen from 25.6% of UK financial wealth, or £311 billion, in Q3 2008 to 22.7%, or £344 billion, in Q2 2014. These contrasting trends for the over 50s and under 50s since the financial crisis are illustrated in Figure 1 below.

Figure 1: Financial wealth for over 50s and under 50s, £ billion and percentage of total UK financial wealth (2008-2014)

3Financial wealth consists of (i) stocks, (ii) bonds, (iii) retail bank vehicles and investment trusts and insurance assets. The mix of these three financial asset types held by the typical UK household is provided by Waves 1 and 2 of the ONS Wealth and Assets Survey. The measure of financial wealth discussed is net financial wealth (i.e. net of outstanding financial debts such as overdraft repayment obligations).

1,200

1,000

800

600

400

200

0

77.0%

76.5%

76.0%

75.5%

75.0%

74.5%

74.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014

Over 50s’ wealth, £ billions (LHS) Under 50s’ wealth, £ billions (LHS)

Over 50s’ wealth, % (RHS)

600

700

500

400

300

200

100

0

53.2%

53.4%

53.6%

53.0%

52.8%

52.6%

52.4%

52.2%

52.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



3,000

2,500

2,000

1,500

1,000

500

0

66.5%

66.0%

65.5%

65.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



Source: ONS, Bank of England, Cebr analysis

6

Physical wealthThe over 50s held £665 billion of the UK’s household physical wealth in Q2 2014, some 53.5% of all the physical wealth held by UK households4. Physical wealth held by the over 50s has increased modestly since the start of the financial crisis from £391 billion, or 52.1% of UK household physical wealth, in Q3 2008.

The over 50s’ population growth has driven up the physical wealth holdings of the over 50s. More importantly, overall consumer spending growth has recovered since the financial crisis – from a 2.3% annual decline in Q1 2009 to 4.2% annual growth in Q2 2014. Spending on items categorised as physical wealth in particular rose by 7.7% year on year in Q2 2014, compared to -7.7% in Q1 2009. This has caused the over 50s to accumulate more physical wealth, lifting their physical wealth holdings.

The recent past has seen similar trends for the physical wealth of the under 50s. Although their share has fallen slightly, the amount of physical wealth held by the under 50s has risen from £359 billion in Q3 2008 to £579 billion in Q2 2014. These trends for the physical wealth holdings of the over 50s and under 50s since the financial crisis are illustrated in Figure 2 below.

Figure 2: Physical wealth for over 50s and under 50s, £ billion and percentage of total UK physical wealth (2008-2014)

4Physical wealth consists of durable (or semi-durable) physical assets held in homes such as vehicles, art, furniture, televisions, etc. The measure of physical wealth given here is gross – i.e. not net of the depreciation on households’ physical assets.


1,200

1,000

800

600

400

200

0

77.0%

76.5%

76.0%

75.5%

75.0%

74.5%

74.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



600

700

500

400

300

200

100

0

53.2%

53.4%

53.6%

53.0%

52.8%

52.6%

52.4%

52.2%

52.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



3,000

2,500

2,000

1,500

1,000

500

0

66.5%

66.0%

65.5%

65.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



Property wealthThe over 50s held £2,490 billion of the UK’s household property wealth in Q2 2014, some 66.2% of the UK’s overall property wealth5. Property wealth held by the over 50s has increased modestly since the start of the financial crisis from £2,115 billion, or 65.3% of UK household property wealth, in Q3 2008.

The total property wealth of the over 50s has been driven higher by a rise in the population of over 50s and recent rises in property asset values. After dipping as the financial crisis struck, the value of a typical UK property has now surpassed its pre-crisis peak – although this was largely driven by a buoyant London property market. In Q2 2014 alone, the average house price in the UK rose by 10.2% year on year. For London, this figure rises to 19.4%. This has lifted the value of property holdings held by the over-50s6. Over the past six years, the value of property has been driven higher by four key factors:

■ Slow domestic supply growth as UK homebuilding remained unresponsive to recent price rises;

■ Housing demand growth reflecting population growth and economic recovery;

■ Foreign demand growth which lifted values, especially in London and the South East;

■ Monetary policy such as low interest rates and quantitative easing.

Although under 50s who own property have also benefited from rising property prices in recent years, the total value of property wealth holdings has risen less for the under 50s than for the over 50s. The contrasting property wealth trends for the over 50s and under 50s since the financial crisis are illustrated in Figure 3 below. This divergence has occurred because, relative to the over 50s: (i) a smaller proportion of under 50s tend to own their own homes and (ii) the under 50s typically have had less time to pay off their stock of mortgage debt.

Figure 3: Property wealth for over 50s and under 50s, £ billion and percentage of total UK property wealth (2008-2014)

7

5Property wealth consists of the value of all residential and non-residential property held by households, net of outstanding mortgage debt.

6ONS mix-adjusted UK house price index.

1,200

1,000

800

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200

0

77.0%

76.5%

76.0%

75.5%

75.0%

74.5%

74.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



600

700

500

400

300

200

100

0

53.2%

53.4%

53.6%

53.0%

52.8%

52.6%

52.4%

52.2%

52.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



3,000

2,500

2,000

1,500

1,000

500

0

66.5%

66.0%

65.5%

65.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014




Pension wealthThe over 50s held £3,428 billion of the UK’s household pension wealth in Q2 2014, some 70.8% of all the pension wealth in the UK7. Pension wealth held by the over 50s has increased by 24.0% since the start of the financial crisis from £2,764 billion, or 70.3% of UK household pension wealth, in Q3 2008.

The total pension wealth has risen for this age group as the over 50s population has grown. The largest component of a typical UK pension portfolio is stock – some 50% of the typical fund in 2013 according to the Towers Watson Global Pension Assets Study (2014 edition). The post-crisis financial market recovery has seen the FTSE 100 index8 rise by 67.3% between the Q1 2009 trough and Q2 2014. This recovery was driven by global monetary and fiscal support and rising business confidence. Cash and bond values, 36% of the value of the typical UK pension fund in 2013, have also risen modestly between the start of the financial crisis and Q2 2013 – further lifting the value of over 50s’ pension assets. Some 14% of pension assets were property and other alternatives in 2013; rising property values have therefore lifted pension portfolio values.

Although under 50s who have pensions have also benefited from these trends, a smaller proportion of under 50s own pensions than the over 50s. On average, the typical under 50 has been accumulating pension wealth for a shorter period than the typical over 50. This is partially offset by over 50s drawing down on their stock of pension wealth, meaning that pension wealth is highest for those in the 55-65 age bracket, as Figure 5 shows. This trend is expected to continue next year due to the impact of the new pensions regime presaged in the 2014 Budget and due to come into effect from April 2015.

The new legislation will allow pensioners in the over 55 age group to take lump sums from their defined contribution pensions, as opposed to being forced into buying another financial product after a single drawdown as was previously the case. Within such payments, 25% will be allowed to be taken out tax-free with the remaining 75% taxed at the individual’s marginal rate of income tax. This is expected to encourage individuals to take out lump sums from their pensions. Whilst the vast majority will release funds to secure a future retirement income for themselves or their spouse, some have indicated that some of this cash could be passed on to younger members of the family. This may result in a shift in wealth from the over-55s age group to their children and grandchildren.

Overall, the Government estimates that around 320,000 individuals9 retire each year with Defined Contribution (DC) pension savings. Based on this, the new pension liberation regime is estimated to apply to some £5 billion of assets in 2015 and the Government estimates that around 30% of the total, some £1.5 billion, is likely to be paid out of pension funds to individuals utilising their new freedom and flexibility during 201510. Approximately one in four of the 320,000 individuals retiring with Defined Contribution (DC) pension savings is estimated to hold a pension pot greater than £50,00011.

Individuals will also be able to pass on any unused defined contribution funds to a nominated beneficiary once they die without incurring the current 55% tax charge. This measure may encourage some over-55s to hold onto their pension wealth within the defined contribution fund as opposed to releasing it early, preferring instead to pass it on to younger members of the family at a later time without the fear of losing it all if they pass away in the meantime. The overall impact on the wealth levels held by the over 55s will also be affected by the investment decisions that they take as they use the freedom and flexibility to take charge of their pension savings. This means that future changes in the wealth of the over 55s will depend on the performance of the particular products in which they choose to invest.

Overall so far, as shown in Figure 4, pension wealth has grown faster for the over 50s than for the under 50s since the financial crisis, and the over-50s’ share of total pension wealth has risen slightly from 70.3% in 2008 to 70.8% in 2014. But the new flexibility to access pension savings is expected to soften this trend somewhat, or even lead to a fall in the over-50s’ share of total UK pension wealth as the over-55s are increasingly allowed to spend from their pension pots rather than be forced to accumulate wealth.

8

7Pension wealth is the net value of all pension assets. Towers Watson, 2014, Global Pension Assets Study, 2013 (pp. 31) notes that the typical UK pension portfolio in 2013 was: (i) 50% stock, (ii) 33% bonds, (iii) 3% cash and (iv) 14% other (including property and other alternatives).

8Price return rather than total return.

9https://www.gov.uk/government/news/chancellor-abolishes-55-tax-on-pension-funds-at-death

10www.parliament.uk/briefing-papers/sn06891.pdf

11This is based on the distribution of pension wealth as given in the 2010-2012 Wealth and Assets Survey, which is taken as constant to derive the distribution in 2015.

Figure 4: Pension wealth for over 50s and under 50s, £ billion and percentage of total UK pension wealth (2008-2014)

9



Figure 5: Pension wealth by age bracket in 2014, £ billion and percentage of total UK pension wealth

3,000

3,500

4,000

2,500

2,000

1,500

1,000

500

0

71.0%

70.5%

70.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



1,200

1,400

1,600

1,000

800

600

400

200

0

35%

30%

25%

20%

15%

10%

5%

0%Under 50s 50-54 55-64 65-74 75+

£ billions • % of total

• 29%

• 13%

• 30%

• 19%

• 8%

Financial wealth

Physical wealth

Property wealth

Pension wealth

Financial wealth

Physical wealth

Property wealth

Pension wealth

3,000

3,500

4,000

2,500

2,000

1,500

1,000

500

0

71.0%

70.5%

70.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



1,200

1,400

1,600

1,000

800

600

400

200

0

35%

30%

25%

20%

15%

10%

5%

0%Under 50s 50-54 55-64 65-74 75+


• 29%

• 13%

• 30%

• 19%

• 8%

Financial wealth

Physical wealth

Property wealth

Pension wealth

Financial wealth

Physical wealth

Property wealth

Pension wealth

Wealth of the over 50sThe wealth holdings of the over 50s have been rising12, both in absolute terms and as a share of the UK’s overall wealth. This report examined more deeply how the wealth holdings of the over 50s have developed since the financial crisis. It found that the over 50s hold an increasingly large proportion of UK wealth. Helping the over 50s to make the best use of it could provide a significant boost to investment in the UK while also raising consumption growth. This would raise GDP growth and promote employment for younger age groups.

In the second quarter of 2014, the over 50s held 68.3% of all UK household wealth. Of the four types of household wealth (pension, property, physical and financial) the over 50s held:

■ 77.3% of financial wealth or total holdings of £1.2 trillion

■ 53.5% of physical wealth or total holdings of £0.7 trillion

■ 70.8% of pension wealth or total holdings of £3.4 trillion

■ 66.2% of property wealth or total holdings of £2.5 trillion

The proportion of household wealth held by the over 50s has risen modestly since the start of the financial crisis. When the financial crisis began in Q3 2008 – the period of the Lehman Brothers collapse – the over 50s held:

■ 74.4% of financial wealth or total holdings of £0.9 trillion

■ 52.1% of physical wealth or total holdings of £0.4 trillion

■ 70.3% of pension wealth or total holdings of £2.8 trillion

■ 65.3% of property wealth or total holdings of £2.1 trillion

The wealth mix held by the over 50s has changed modestly since the start of the financial crisis in Q3 2008. Back then, as shown in Figure 6, 44.8% of the over 50s wealth was held in pensions and 14.6% was financial wealth.

10

12Current prices terms.

Figure 6: Wealth holdings by type for over 50s, proportion, Q3 2008

Six years later, as shown in Figure 7, the proportion of over 50s wealth held in pensions has fallen back slightly to 44.2%, and the proportion held as financial and property wealth has risen somewhat while the share of physical wealth has remained broadly constant.

Figure 7: Wealth holdings by type for over 50s, proportion, Q2 2014

Ultimately, the share of UK household wealth held by the over 50s has risen since the financial crisis. This has been caused principally by rising property values and pension wealth. That said, it is important to note that the over 50s have also suffered from loose monetary policy, which has depressed bond yields and annuity returns. Put otherwise, returns on saving have declined for the over 50s and other UK savers. Overall, helping the over 50s make efficient use of their assets has the potential to support investment and consumption throughout the UK economy, lifting GDP growth and employment.

11

3,000

3,500

4,000

2,500

2,000

1,500

1,000

500

0

71.0%

70.5%

70.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



1,200

1,400

1,600

1,000

800

600

400

200

0

35%

30%

25%

20%

15%

10%

5%

0%Under 50s 50-54 55-64 65-74 75+


• 29%

• 13%

• 30%

• 19%

• 8%

Financial wealth

Physical wealth

Property wealth

Pension wealth

Financial wealth

Physical wealth

Property wealth

Pension wealth



3,000

3,500

4,000

2,500

2,000

1,500

1,000

500

0

71.0%

70.5%

70.0%Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014



1,200

1,400

1,600

1,000

800

600

400

200

0

35%

30%

25%

20%

15%

10%

5%

0%Under 50s 50-54 55-64 65-74 75+


• 29%

• 13%

• 30%

• 19%

• 8%

Financial wealth

Physical wealth

Property wealth

Pension wealth

Financial wealth

Physical wealth

Property wealth

Pension wealth

BibliographyONS, “Wealth and Assets Survey (Waves 1, 2 & 3)” ONS, “House Price Index” ONS, “Consumer trends” ONS, “Population estimates” Towers Watson, 2014, “Global Pension Assets Study, 2013” Bank of England, data on deposits and loans, bonds and stock values

Disclaimer, authorship and acknowledgementsDisclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd nor the report’s authors will be liable for any loss or damages incurred through the use of the report.Authorship and acknowledgements This report has been produced by Cebr, an independent economics and business research consultancy established in 1992.

London, January 2015

a report for saga - cebr.com · pdf filea report for saga january 2015. contents 3 foreword by...

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