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30 September 2013

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British money habits fundamentally changed

Thrifty thinking could be here to stay, new findings show 

Money worries during the recession have given way to an increasing sense of personal financial responsibility, the findings of a joint report by the government-backed pension scheme NEST and leading research house the Futures Company show.

One of the most significant examples of this trend is the response to the government’s new automatic enrolment workplace pension reforms, with opt out rates significantly lower than many had forecast.

Commenting on the research findings, NEST CEO, Tim Jones, said:

“The recession has evidently changed consumer behaviour and for the first time we can see the impact it’s had on British attitudes as well. Many households are still feeling the pinch and people are worried about the future, but they clearly think tomorrow is worth saving for and automatic enrolment seems to be a welcome helping hand. Although it can be a struggle to find a few extra pounds each month, the money from employer contributions and relief at finally doing something has convinced more people to stick with saving than we ever expected in this economic climate.”

Director of the Futures Company, Andrew Curry, said:

"The experience of living through the economic crisis appears to have had a significant effect on the way people think about spending and saving. The signs are that this will cause a lasting shift in consumer sentiment."

The report finds:

58 per cent of people in the UK agree that ‘this recession has changed global consumer culture forever’, a shift in attitudes that has affected how people manage their money day to day and how they think about their future.

More than half of British consumers think they’ll never spend money as freely as they did before the recession and more than two thirds now think twice before making even the smallest purchases.

Consumers are half as likely to have unsecured debt as two years ago, they have paid off credit card debts and only a tiny fraction now owe money on store cards. 

Consumers today keep track of exactly how much money they spend, regularly use comparison websites to make the most of their money and spend a lot of time shopping around for the best deal.

Long term financial security has also gone up people’s priority lists. Fewer people are confident about what they have set aside for retirement compared to two years ago and a large majority are worried they won’t have enough. If they received a sudden windfall, most people would invest it for the future rather than spend it today.

Of more than 1.4million people who have been enrolled during this first year, just 9 per cent have opted out. A third of those who opted out cited affordability as the reason. 15 per cent said they are saving through other means and 14 per cent said they were too close to retirement.

Of those who have stayed in, just over half say they’ve done so because it’s ‘time to start saving for retirement’ and 48 per cent say it ‘makes financial sense because the employer contributes’. Just 13 per cent said they were too busy to opt out, suggesting this has been an active choice for many.

Read Automatic enrolment and the new consumer realism (PDF)


Reactions from the industry

Otto Thoresen, Director General, ABI, comments:

‘We must build on the success of auto enrolment  to incentivise greater saving. The research suggests that the timing of the pension reforms is going with the grain of a cultural shift in the UK. ABI members are reforming the market to improve customer confidence in pensions: charges have fallen, transparency is increasing, we are changing the processes at retirement to help people make the right pensions choice and we have opened up a debate on the role of tax incentivisation in getting people to save more for longer. We will continue to put all our efforts into working with NEST, the government and other stakeholders to build momentum in implementing pension reform successfully.'

Commenting, TUC General Secretary Frances O'Grady said:

'This is further evidence that auto-enrolment is turning out to be a huge policy success. Opt-out rates look set to remain lower than expected even as it spreads to smaller employers.

'And with growing evidence that people's attitudes have been permanently shifted by the crash, the time is right to start a debate on how best to increase contributions to ensure that the new system delivers decent retirement incomes.

'No doubt we can do more to encourage voluntary saving, but we need to plan for an increase in minimum contributions if we are to deliver good pensions for all.'

Caroline Rookes, chief executive of the Money Advice Service, said:

‘Our Financial Capability of the UK report, published earlier this year, showed that only around 30 per cent of people are paying into a pension.

‘So it’s really encouraging to see this research from NEST, showing how seriously people take saving for retirement. Automatic enrolment in your employer’s pension scheme is a hassle free way to start saving, and the best news in this report is that only 9 per cent of people say they’ll opt out of automatic enrolment in their employer’s scheme.

‘At the Money Advice Service, we’ve got a whole host of tips and guides on how to start saving for retirement, and on automatic enrolment.’

Notes to editor
Data is drawn from NEST’s consumer surveys and the Futures Company’s Consumer Outlook research.

Consumer Outlook is a nationally representative online survey conducted regularly in the United Kingdom and Republic of Ireland between 2008 and 2013 (UK n= c.1,000 each year). The analysis in this report draws on seven detailed examinations of the impact of the financial crisis on consumers’ outlook and behaviour throughout the survey period.

NEST has conducted two waves of a consumer survey among all UK workers who are eligible for automatic enrolment. The research surveyed representative samples of 1,000+ jobholders. Research was undertaken in November 2011 and March 2013. 78 per cent of the 2013 sample has yet to go through AE while 22 per cent claim to have been through AE.  

Data quoted is for 2013 unless otherwise stated. Selected data can be found below.

The economic downturn has changed attitudes to money.

  • 58 per cent of people agree that this recession has ‘changed global consumer culture for ever’.
  • 48 per cent of people agree they’ve become better at managing their finances since the recession.
  • 57 per cent of people agree they’ll never spend money as freely as they did before the recession, up from 48 per cent in 2012 and 43 per cent in 2010.

In response, we’ve become much more careful about what we spend and how.

  • 75 per cent of people say they keep track of exactly how much money they spend.
  • 63 per cent of people say they regularly use comparison websites and associate this with making the best use of their money.
  • 69 per cent claim they spend ‘a lot of time shopping around’ in order to get the best deal.

Our attitudes to debt have also changed…

  • The number of people who say they have an unsecured loan has nearly halved to 14 per cent, from 26 per cent in 2011.
  • The proportion of people not paying off their credit card balance each month has fallen to 29 per cent from 52 per cent in 2011.
  • The number of people who owe money to a catalogue company or on a store card has halved.

… as have our attitudes to saving for retirement.

  • When asked about having enough money to retire on, only 14 per cent of the working population say they are not worried at all. 54 per cent, are either very or fairly worried.
  • 61 per cent of people agree that it’s a good idea for people to be enrolled into a workplace pension scheme.
  • Just 18 per cent now disagree, down from 27 per cent who disagreed in 2011.
  • 61 per cent of people who haven’t yet been enrolled say they will definitely or probably stay in, up from just 47 per cent in 2011. Just 9 per cent now say they will definitely opt out.
  • 58 per cent of those earning under £25,000 a year also agree they’ll definitely or probably stay in and a further 18 per cent are still undecided. 

We believe this has contributed to much lower opt-outs from automatic enrolment than expected. When asked why they didn’t opt out, most people point to a positive choice.

  • 51 per cent think it’s time to start saving for retirement
  • 48 per cent think it makes financial sense because the employer contributes
  • 45 per cent are relieved they now have something in place
  • 13 per cent are too busy to opt out