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Ratio hornblower

The savings ratio is based on the latter – it is the difference between what we earn and what we spend, so it is effectively the net increase in savings held minus the net increase in debt owed.

The Isa figure is the amount invested, not the net effect, and we know from the Lipper Feri UK fund sales report that net Isa fund sales (contributions minus withdrawals) in the first three months of this year were at an all-time low.

So we have a position where consumers are saving record amounts and at the same withdrawing record amounts from their savings, a finding confirmed in the recent Scottish Widows’ UK pension report.

The average savings ratio – the average percentage of earnings saved for retirement by those who are not depending on a defined-benefit pension as their main income source – is at a record high of 8.7 per cent. This is well short of the 12 per cent benchmark but does suggest improved savings habits, especially when non-savers fell from 24 to 18 per cent of those who should be saving for retirement.

The increase in the average savings ratio from 2007 is due almost entirely to savings outside pensions that are being earmarked for retirement, with little change in the amounts being invested in pensions.

Yet the total savings held outside pensions by this group has not increased, confirming heavy withdrawals. The savings tap may be turned fully on but the plug is out, so the level is not rising.

This may well reflect different behaviours by different consumer groups. In uncertain times, some will tighten their belts and put aside more for a potentially difficult future. Others will react by drawing on their savings to maintain their living standard and possibly also to pay off debts when extension of lending becomes more difficult.

But it is likely that many people are making lumpsum withdrawals from their savings while at the same time putting aside increasing amounts each month. Many of us will recognise this behaviour.

We may have relatively few qualms about withdrawing cash savings whereas we see equity-based investments as being for the long term.

Unsurprisingly, while equity Isa withdrawals almost match new savings, the sales growth is entirely in cash. Consumers are more cautious in how they invest. However, despite the risk that money saved now will be spent fairly quickly, any trend towards more regular saving is to be welcomed and will bring opportunities for advisers.

The reduction in non-savers is encouraging. Not saving is habit-forming, with 83 per cent of non-savers over age 50 saying they never expect to start a pension. Anything that encourages those not in the savings habit to take the first step towards providing for their future is positive. Having started saving, it is easier at a later stage to think about moving to more appropriate vehicles. Cash Isas can be converted into equity Isas and non-pension savings can later be put in a pension wrapper.

Since A-Day, that has become a very sensible strategy for many people who want to save for their retirement but are reluctant to tie up their money completely. With much more generous yearly contribution limits – essentially everything you earn can qualify for tax relief – moving formal pension planning closer to retirement is attractive to many.

As long as they understand the risks, including the possibility that they may not be working when they want to move the money over, this flexibility will be very valuable for many people.

Overall, we can be encouraged, despite the apparent leakage of savings. When they are looking for help with savings, consumers still recognise the value of professional advice. As in previous years, IFAs are the most trusted source of guidance by some distance.

It may be hoping for too much to expect substantial net increases in saving in the short term but the building blocks are in place for when the economy recovers.

Ian Naismith is head of pension market development at Scottish Widows

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