Everything You Need To Know About The Savings Gap
One of our key missions at True Potential is to help close the Savings Gap. We hope to help this cause in several ways, including better financial education and easier to use technology.
As part of our ongoing efforts, we’ve also surveyed over 22,000 people since August 2013 to learn more about attitudes to saving. Here’s everything you need to know about what we’ve learned, and what we can do to improve this situation.
What is the Savings Gap?
We define the Savings Gap as the shortfall in savings which could negatively impact your life. This is a societal problem, with our research showing that only a minority of savers will have enough funds for a comfortable retirement, by their own definition
How are people affected?
Our polling shows that an income of £23,000 is needed annually in retirement to live comfortably.
However, based on actual savings behaviour, people in the UK are on course to receive an income of just £6,000 per year from their retirement fund.
What causes the Savings Gap?
We’ve identified three key causes behind the Savings Gap – a knowledge gap, agility gap, and technology gap.
For example, with the knowledge gap, research by the Organisation for Economic Cooperation and Development found that only 38% of UK adults understand the term “inflation.”
The agility gap is typified by the need for simpler savings and investment products. The technology gap is all about ensuring that people have accessible and easy to use methods for saving or investing.
What are we doing to help?
At True Potential, we are pro-active in helping people to manage their Savings Gap. With the education gap, we have partnered with the Open University and launched the ‘The True Potential Centre for the Public Understanding of Finance’ (True Potential PUFin).
In terms of the technology gap, our Head Office Innovation Hub has developed technology like impulseSave®. This enables people to top up their investment from £1, while tracking their performance against the goal they set.
With the agility gap, we are continuing to campaign for simpler savings and investment products.
What does the latest research suggest?
In the final quarter of 2016, 26% of the people we surveyed saved nothing for retirement in that period. We also learned that 41% of people do not have an ISA
However, there are some positive signs, with younger people perhaps becoming more engaged in long term investing. Only 13 per cent of 24 to 34-year-olds made no pension contributions, down from 19 per cent in the previous quarter.
How can I beat the Savings Gap?
With Cash ISA rates around 1%, and with inflation at 2.6%, you could actually be losing spending power in a traditional savings account.
Something to consider could be a Stocks & Shares ISA. Our portfolios benefit from Advanced Diversification, aiming to maximise returns while minimising risk.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest.