Worried Brits turn to savings as cost-of-living spikes

Tom Selby
10 June 2022

AJ Bell press comment – 10 June 2022

Around 4-in-10 people who say they are ‘very worried’ about rising living costs are using their savings to plug the gap (Worries about the rising costs of living, Great Britain - Office for National Statistics (ons.gov.uk))

  • Cutting back on fuel use, shopping and non-essentials spending among the actions taken by hard-up Brits
  • Women and parents of young children more likely to report feeling worried about rising inflation
  • Anyone tapping emergency savings to make ends meet needs a plan to rebuild those savings when they can
  • Savers raiding Lifetime ISAs or pensions during the current crisis risk paying a heavy price

Tom Selby, head of retirement policy at AJ Bell, comments:

“Millions of Brits are understandably worried about the future, with energy bills spiralling and growing fears interest rates may rise further to keep inflation in check, driving up borrowing and mortgage rates.

“Women and those with young children appear to be the most concerned about the current state of affairs.

“Although the lowest earners are more likely to be worried about the future, plenty of people with higher incomes are also concerned. Over two-thirds of those with an income above £50,00 said they felt worried about the rising cost of living.

“Many people are opting to tighten their belts, reducing fuel and energy use, spending less on shopping and cutting back on non-essential spending.

“Around 4-in-10 of those who say they are ‘very worried’ about the cost-of-living are using their savings to plug the gap (see chart).

“There is nothing wrong with this – dealing with unexpected bills is what a rainy-day fund is there for – but it’s vital those draining their savings today have a plan in place to rebuild it when their financial situation brightens.

“In fact, with energy costs on the up, there is a strong argument for reviewing and bolstering your rainy-day fund if you can afford to.”

Lifetime ISAs and pensions

“Although the ONS doesn’t break out the type of ‘savings’ people are accessing, recently published HMRC data shows almost 9,000 Lifetime ISA savers accessed their money early in the month of April alone, being hit with a 25% early withdrawal charge in the process.

“In total, £3.5 million of early withdrawal charges were paid during April – the highest figure in the last 12 months.

“Meanwhile, anyone over 55 who takes taxable income from their retirement pot to make ends meet will be hit with a 90% ‘annual allowance’ cut, from £40,000 to just £4,000.

“They will also lose the ability to carry forward unused allowances, meaning they will be permanently hamstrung when it comes to rebuilding their retirement pot.

“Given the pressure facing millions of households young and old, the Government should take a pragmatic view by lowering the Lifetime ISA early withdrawal charge to 20% and increasing the ‘money purchase annual allowance’ from £4,000 to £10,000 at the very least.”

Source: ONS (questions: In the past two weeks, how worried or unworried have you been about the rising costs of living? and Which of the following are you doing because your cost of living has increased?)

Tom Selby
Head of Retirement Policy

Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014. Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.

Contact details

Mobile: 07702 858 234
Email: tom.selby@ajbell.co.uk

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