For a number of years now, the savings ratio has been at historically low levels, with 2008 marking the lowest figure for nearly 50 years at 1.5 per cent. For over 30 years prior to 2003, the figure had been above 4 per cent and over 8 per cent for the majority of this time.
But recently things have started to change quite dramatically. Each quarter since the end of 2008 has seen the figures rise, with Q3 2009, the most recently published figure, at 8.9 per cent. This change has been clearly reflected in the sales figures for funds.
The Investment Management Association collates the figures for all UK investments in funds and publishes them every month. One of the favourite parts of my job is putting together the monthly statistics press release. It is really interesting to see what has changed and what trends the figures show.
We have recently published the figures for the whole of 2009 and they really are quite remarkable. 2009 was a record year for fund sales, with £25.8bn of net retail sales. This figure is 45 per cent higher than the previous best year, which was 2000. It was also in marked contrast to 2008, with net retail sales more than six times higher in 2009.
The total for 2008 was just £3.8bn, the lowest figure since 1995. In 2008, no month had net inflows over £2bn. By contrast, in 2009, net retail sales exceeded £2bn a month for nine months in a row. The total for the last two months of 2009 was more than the whole of 2008.
So, what is going on? Some of what we are seeing is part of longer-term trends. One trend has been the move away from with-profits into unitlinked funds. Another long-term trend is as a result of the decline of the definedbenefit employer pension scheme and the increase in defined-contribution schemes that invest in funds.
But there is more going on than that, as looking at Isa sales shows. Isas are a bellweather for what ordinary investors are doing. Net sales of stocks and shares Isas in 2009 totalled £2.8bn – the highest they have been since 2001. In contrast, the previous five years had seen outflows.
The very poor level of interest rates available from savings deposits accounts has led those with money to look elsewhere.
This, perhaps combined with the growth in stockmarket returns last year, saw savers voting with their wallets for equities. The first half of 2009 was dominated by bonds but the second half saw inflows into equities well ahead of bonds.
We are also seeing the classic response to recession – a return to the habit of saving, with families putting by a bigger proportion of their incomes.
Overall, it looks like a vote of confidence in funds by both the institutional investor and the ordinary saver.
Ginny Broad is head of communications at the Investment Management Association