Are you one of lockdown’s accidental savers? Here’s where to put your windfall
Boost: The pandemic has created an army of six million ‘accidental savers’
The pandemic has created an army of six million ‘accidental savers’, according to a report published today by consultancy Lane Clark & Peacock.
It defines accidental savers as people who have boosted their savings during the pandemic without actively choosing to do so. Their incomes have remained unchanged while their spending has dropped sharply and as a result their nest eggs have grown.
Lane Clark believes many of these accidental savers need to give more thought to what to do with their surplus cash. Just over a quarter of them have simply left the money languishing in a current account.
It warns: ‘Whilst this is understandable in the very short term, leaving meaningful sums in a current account almost certainly paying little or no interest is unlikely to be a good long-term strategy.’
It suggests better alternatives include paying off debts, investing or putting money into a savings account. Around three in five have put their money into a savings account, its research indicates.
Lane Clark believes more could be done to encourage accidental savers to put a portion of this cash into their pensions. For example, pension providers could nudge savers to consider making a one-off additional contribution into their pension, particularly in the run-up to the end of the tax year in April.
Providers could make it even easier for savers by setting up websites or phone helplines to make extra pension top-ups, it suggests. Employers could also work with pension providers and advisers to encourage savers to consider whether they could afford to increase their monthly contributions.
Steve Webb, a former Pensions Minister and now partner at Lane Clark, says: ‘There are few silver linings from the current crisis, but the emergence of a large group of accidental savers could be one of them. Many people who have built up balances have not yet committed them to long-term savings, and many pension schemes and providers do not make it easy for members to make one-off contributions. A concerted effort is needed to use this unexpected opportunity to create more of a savings culture.’
Savers may choose to put some of their cash into a stocks and shares Isa as well. Laith Khalaf, financial analyst at wealth manager AJ Bell, says: ‘For money that can be stashed away for five to ten years or more, savers should consider investing in the stock market. This comes with higher risks, but usually higher returns too.’
The Bank of England is also relying on these savers to part with some of their extra cash once life starts to return to normal. It estimates that savers put aside an extra £150billion last year. Even if just a portion of this is spent later this year, it would provide a huge boost for the economy.
Savers who have been starved of holidays, family get-togethers and entertainment may choose to splash the cash to compensate for a difficult year. The Bank predicts savers will spend around five per cent of their extra cash savings, using the rest to pay off debts or build up a rainy day fund.
Of course, while some households have managed to save more during the pandemic, millions have seen their finances ravaged. Unemployment hit its highest level in almost five years between October and December, with 1.7million people now out of work. Many more have seen their incomes fall, while more than eight million had to take on debt last year to make ends meet.