Professional Documents
Culture Documents
Finances Report
Spring - 2011
In addition, this season’s report looks at how UK families are working with
their employers to save for retirement and how the introduction of pensions
auto-enrolment in 2012 will be greeted by the millions of UK citizens who
make up these family units.
Overview:
● Income – Salary increases see monthly family income rise by 6% to £2,062 (pg 5).
● Expenditure – Significant annual inflation hits major family costs – food (+5.09%), fuel and
light (+6.08%) and motoring (+11.34%) (pg 7).
● Wealth – Fewer families have no savings (28% – May 2011 vs. 33% – Jan 2011) as people
step up to the challenge (pg 9).
● Housing – More families own their own homes with a mortgage as lending increases, but
house prices fall (pg 10).
● Debt – Focus on saving sees average unsecured debt increase to £5,878 (pg 11).
● Look to the future – One in five families is concerned about potential mortgage rate
increases in the near future (pg 12).
● Employee pensions – Just 28% of full-time employed family heads in the UK has a
company pension (pg 13).
● Pension contributions – More than one in five (26%) would sacrifice 5% of their salary if
their employer matched their contributions (pg 14).
● Auto-enrolment – Encouragingly, 55% feel it would be “silly not to join” a company pension
if their employer also contributed. It is concerning however that one third (35%) feel they will
either opt out or don’t yet know what they’ll do when automatically enrolled (pg 14).
* For the purpose of this report, a committed relationship is defined as either one where people are married or living together.
Indeed, there has been a marginal fall in those who earn below £750, from 9% (Jan
2011) to 8% (May 2011) and those who earn between £751 and £1,000 from 10%
(Jan 2011) to 8% (May 2011). We anticipate that with the national minimum wage
due to increase by 15 pence to £6.08 in October 2011, this group will also receive a
boost later in the year.
2000
Monthly Income (£)
1500
1000
500
0
Couples with plans Couples with Couples with Single, raising
to have children one child two children one or
more children
Of the family groups tracked, single parents receive the lowest monthly income (£874).
This fell from £906 (Jan 2011) earlier in the year and seems to indicate that for this group
– where 61% receive some type of benefit – Government cuts are starting to bite.
At the other end of the scale, those who are in a committed relationship and want
children, have the highest monthly income (£2,338). This is a seven percent increase
since January 2011 (£2,187) and seems to indicate that dual-income households
without children have benefitted most from employers’ generosity.
In addition, the number of families with a household income of more than £2,500 has
increased by four percentage points from 34% (Jan 2011) to 38% (May 2011).
Eighteen per cent say part-time employment by one or another heads of the household contributes to monthly income. This
has largely remained the same since January although the percentage of people deriving income from a part-time job has fallen
marginally (-1%) possibly as work associated with the festive season has dried up.
Outside salaried work, state benefits (23%) provide some form of income to more than a fifth of UK families. Single parent families
(61% – May 2011) and those headed by divorced/widowed/separated people (42% – May 2011) are most likely to claim some form
of benefits and also have the lowest median income.
However, while the number of single parents (median income – £874) claiming benefits rose by seven percentage points, the
number of divorced/widowed/separated parents (median income – £1,138) doing so fell by the same amount over the period.
This appears to suggest that – even before the introduction of the changes outlined in the Comprehensive Spending Review –
the Government is looking to cut benefits for those who are slightly better off, while at the same time direct them to the lowest-
income groups.
While some need state support to survive, others have benefitted from increased competition in the savings market which has
seen the launch of a selection of products paying competitive interest rates. The number of families who derive some income from
savings hit 7% (4% – Feb 2011).
In addition, with 15% of families surveyed in the study saying they own a second property (see page 10), it is no surprise to see that
income from a rental property was also cited by some families (2%) as boosting their income.
Food is the next largest expense (11%) for the average UK family and there has been a one percentage point increase from January
2011. This is lower than might be expected – especially as annual inflation on food has risen 5.08%. However, with analysts
reporting that lower-cost supermarkets are starting to grow their share of the UK market, it appears that many families are ‘down-
shifting’ their spending on food and cutting back on luxuries.
The average UK family’s third largest monthly expense is fuel and light (6%) and there has been a considerable annual inflation
(+6.08%) when compared to January 2011 (+2.42%). This is even more extreme when considering that annual inflation to
November 2010 was actually negative (-1.88%).
Indeed, soaring petrol prices mean families will be feeling the 11.34% rise in annual inflation on fuel costs and we are likely to see
people cutting back on unnecessary journeys or using public transport more. However, we have seen annual inflation of 4.21% on
this mode of transport, so costs have risen here too.
While the average family only spends 3% of their income on clothing and footwear, they are likely to have found this significantly
more expensive than the same time last year, due to the 12.25% annual inflation rate.
While 90% of families surveyed do not pay private school/tuition fees, for those that do, they are a significant drain on family
finances, accounting for 12% of monthly expenditure. Far more common for all families (and only marginally less expensive) is the
monthly cost of nursery/after school care, accounting for 10% of monthly expenditure, and children’s activities (4%).
It is interesting to note that for single parents who are raising one or more children, nursery/after school care can account for up
to 25% of their income. This raises the thorny issue of whether they are financially better off working or claiming benefits, and
therefore highlights the need for affordable childcare options.
Finally, UK families are spending an average of 10% of their monthly income on debt repayment – this is two percentage points up
from January 2011. This highlights the importance that indebted families place on climbing back on to a secure financial footing.
£100000
£80000
Total Debt
£60000
£40000
£20000
£0
Committed Committed Married/ Committed Divorced/ Single raising
relationship, no relationship committed relationship separated/ one+ children
plans to have with plans to relationship with two+ widowed alone
children have children with one child children raising one
child alone
Family Type
In actual fact the typical family (i.e. the family in the middle of the sample) is significantly less prepared having just £1,163 (£849 –
Jan 2011) in savings and saving £32 (£22 – Jan 2011) per month.
Nevertheless, these figures show a clear picture of UK families stepping up to the challenge and looking to build a financial safety
net in what is an uncertain economic and political environment. Indeed, we have seen the number of families with no savings drop
from 33% (Jan 2011) to 28% (May 2011) and those who save nothing each month fall from 40% (Jan 2001) to 37% (May 2011).
However, while more families have shown a keenness to start saving since the start of the year, they have not had chance to make
significant progress. The percentage of people with savings of less than £500 has risen to 15% (13% – Jan 2011) as people start to
build small pots but have yet to build a big cushion.
In addition, the typical family (i.e. the median) within the two more vulnerable groups – single parent families (51% save nothing) and
the divorced/widowed/separated (65% save nothing)– continue to save nothing each month. At the other end of the scale, those who
are in a committed relationship and want children are actively working towards this goal and save £81 per month (£55 – Jan 2011).
It is interesting to note that the number of families with an ISA has only increased marginally from January (33%) to May (34%) – as it might
have been expected that the tax year end would encourage more people to take advantage of their 2011/2012 tax allowances. However, it
appears that the ‘easy access’ nature of basic savings accounts is more appealing to ordinary savers than the tax breaks available.
3% Buy-to-let mortgage
6% Fixed-term bonds
11% Income Protection
13% Critical illness cover
13% Private Health Insurance
14% Stocks and shares investments
17% Private pension
22% Premium bonds
34% ISA (Cash or Shares)
34% Employer pension
38% Life Insurance
47% Mortgage on your primary property
80% Basic bank/building society savings account
“It is good to see that four out of five UK families have a basic bank or building society
savings account. However, while these figures are heartening, the fact that 20% don’t
have a savings account is very worrying. While economic conditions are tough, it is
important that where possible, families work to put aside something each month.”
Paul Goodwin, head of pensions marketing, Aviva
“For most people, residential property will be the biggest asset that they
ever own. However, as we have seen over the last few years, what goes
up may come down. Therefore, it is important that people ensure they are
using other products to ensure their family’s security as well.”
Paul Goodwin, head of pensions marketing, Aviva
£100000
£80000
Total Debt
£60000
£40000
£20000
£0
Committed Committed Married/ Committed Divorced/ Single raising
relationship, no relationship committed relationship separated/ one+ children
plans to have with plans to relationship with two+ widowed alone
children have children with one child children raising one
child alone
Family Type
The main driver behind this increase appears to be the ‘squeezed middle’. Indeed, the largest increases in average debt have been
seen by those families in a committed relationship with one child (£4,404 to £5,452) or two or more children (£5,248 to £6,200).
Each family will have their own unique reasons behind their debt but – it is safe to suggest – with this group likely to find credit
more readily available than other groups, an unexpected expense – such as a new car or family holiday – may account for this
increase. In addition, those in a committed relationship with two or more children (17%) are also the most likely to have more than
£10,000 of unsecured debt.
At the other end of the scale, those in a committed relationship who do not want children have paid down their debts (-15%
to £5,736) and we have seen a four percentage point drop in those who owe more than £10,000 to 9%. Clearly for those with
‘surplus’ income, debt repayment is a key goal.
While divorced/widowed/separated parents (debts of £4,992 – May 2011) and single parents (debts of £4,696 – May 2011)
continue to have worrying income to debt ratios, both of these have cut back their borrowing. In January divorced/widowed/
separated parents had debts of £5,781, and single parents had debts of £4,820.
Finally, while 67% of UK families have some form of unsecured borrowing, 33% continue to avoid using this type of credit.
Debt is for many families just another part of their financial management strategy.
However, in an uncertain economy, it is essential to look to pay debts down where
possible and avoid additional financial obligations. It is then good news that a third
of people continue to have no unsecured debts.”
Paul Goodwin, head of pensions marketing, Aviva
These fears have remained fairly steady across all groups – except for single parents
whose second biggest fear is losses/changes to the Government benefit system (58%).
Outside the top three fears, families were increasingly worried about how to service
secured and unsecured debt. Indeed, fear of higher mortgage rates rose from 13%
(Jan 2011) to 17% (May 2011) and worries around the inability to keep up debt
repayments rose from 13% (Jan 2011) to 14% (May 2011).
Those in a committed relationship with children are finding the repayment of secured
and unsecured debt to be a big concern. They are most likely of all the groups tracked
to worry about debt repayments (17% - committed relationship with one child) and
rising mortgage costs (19% - committed relationship with two or more children). This
highlights the financial pressures that families with children find themselves under or
put themselves under.
In addition to these fears, over the long term one in five (+3% points to 20% - May
2011) are worried about rising mortgage costs and almost one in 10 (+2% points to
9% - May 2011) are concerned about meeting costs such as university fees. Those
who are widowed/divorced/separated with one or more children (15%) are most
worried about how they might meet these costs.
To help combat this, the Government is introducing rules so all employees are automatically enrolled into
workplace pensions from October 2012.
This initiative will see the mandatory introduction of workplace pensions by all UK employers. In simple
terms, all employers will be required to contribute a minimum of 3% of each employee’s eligible earnings
towards the pension – assuming the employee doesn’t opt out. Employees will need to make a minimum
personal contribution of 4%, with a further 1% coming from tax relief, which means total contributions will
be a minimum of 8%. The employee will be automatically enrolled into the workplace pension, but will have
the right to opt out at any stage. This requirement will be phased in between October 2012 and 2016 –
depending on the size of the employer.
Prior to this launch, Aviva has taken a snapshot of how ordinary families currently engage with employer
pension schemes and how they might choose to engage with auto-enrolment.
More than a third (37%) of all full-time employed UK family heads claim to work for a company that does not offer
a workplace pension. There are around a million employers in the UK so the introduction of auto-enrolment in 2012
will cause a significant shift. Just 28% say they have an employer pension that they are actively paying into.
The remainder of working family heads have either chosen not to pay into it (25%), are ineligible (3%) or –
perhaps – more worryingly, simply don’t know what their employer offers (7%). Employer communication of
the benefits on offer appears to be key, with 18% of those who are not members of a scheme citing lack of
communication as the main reason behind not joining.
35%
30%
25%
20%
15%
10%
5%
0%
Do not belong to Belong to Not eligible for Employer does Unsure of
employer pension employer pension employer pension not offer a whether employer
scheme scheme scheme pension scheme offers pension
scheme
Almost a third (28%) of people who do pay into a pension scheme appear to focus on the benefits they can
derive by taking this course of action. Indeed, 55% say as their companies also contribute to the scheme it
would be “silly not to join” and 44% found their company’s positive stance towards enrolment ensured they
joined the scheme.
“It’s encouraging that the vast majority of families (74%) feel they
should be able to contribute towards a workplace pension - and
good news to see that most employees (55%) feel it would be ‘silly
not to join’ a company pension if their employer also contributed. It
is concerning however that a third (35%) feel they will either opt out
or don’t yet know what they’ll do when automatically enrolled. For
the long-term interests of customers, all parties concerned need to
work hard to ensure that opt-out rates are as small as possible.”
Paul Goodwin, head of pensions marketing, Aviva
Finally, 15% said that without a company scheme they would not be saving anything for retirement and one
in eight (13%) revealed that they don’t trust the Government to look after them in their old age.
While almost one in five (18%) of all full-time employed UK family heads did not believe they could contribute
to a pension and still meet their basic living costs – even if their contributions were matched by their employers
– the majority of UK workers begged to differ.
With regular warnings in the media and Government announcements highlighting the pitfalls of not saving
for retirement, when asked how much of their salary they would be prepared to contribute, the most popular
response from full time workers was up to 5% of their salary, if matched by employers (accounting for 26%
of respondents).
For those earning the median UK salary, this would equate to them contributing £1,294 per year and - when
combined with matching employer contributions - would provide a pension pot of £113,868 over a 44-year
working life (before inflation, investment performance and salary fluctuation is factored in). Using Aviva’s
pension calculator, a customer might expect a fund of £252,438 - this takes into account inflation and
investment growth. This is significantly higher than the current average annuity pot of less than £30,000 and
would be a significant step towards eliminating the UK pensions crisis.
While some commentators are sceptical about auto-enrolment, the highest percentage of UK families (37%)
would be ‘pleased to be automatically enrolled’ and would even ‘feel valued by their employer’ as a result
(7%). Just 15% of UK families said that they would choose to opt out with the highest percentage of these
being single parents (22%) who were also most likely to be concerned about how their ‘take home’ pay
might be affected (28%).
Indeed, while UK family members were generally positive about auto-enrolment, there is a significant piece of
work that needs to be done to inform people of the changes and put their minds at rest. With less than two
years to go, one in five (20%) have yet to form an opinion on this issue and 12% worry that the scheme may
not be the best option for them.
It is interesting to note that women – who often have significantly less retirement provision – are more
positive about auto-enrolment than men. More (39%) are pleased to be automatically enrolled (men – 35%)
and just 14% (men – 17%) will consider opting out of the scheme.
However, for 96% of ordinary UK families, there is sufficient cash to spend on further
expenses. Some choose to take positive financial decisions with this surplus and pay
down unsecured debts (32%), put into a savings account (23%), put it into a long-
term savings vehicle (8%) or pay down their mortgage (7%).
Nevertheless, just 10% look to put this surplus into some form of retirement savings
vehicle. In addition, those who arguably need to take the biggest proactive steps in
this arena are least likely to do so – single parents with one or more children (4%).
However, Aviva’s latest Understanding Consumer Attitudes to Savings study (May
2011) shows that the majority of UK adults feel they will need at least half of their
regular monthly income to ‘get by’ in retirement and two thirds to be ‘comfortable’.
So there is clearly work to be done to meet these expectations.
While some take proactive steps to improve their financial position, others choose
to spend surplus on treats for the family (33%), home improvements (17%) and on
themselves (11%).
In terms of savings and investments, London families have the most, with an
average of £26,024 put away. However, there has been an improvement across
nearly all regions in terms of a reduction in the percentage of families with
no savings. The greatest change between January and May was seen by
families in the East Midlands where 32% reported having no savings in
January but just 22% claimed they still had no savings in May. The only
region reporting an increase was the North East where 40% of families now
say they have no savings – up from 37% in January.
With regards to debt, families in the South East (39%) are most likely
to be debt-free (in terms of credit cards, loans and overdraft) and
those in Wales (23%) are least likely to be debt-free. However,
families in the East Midlands have the lowest mean average debt
(£3,897), compared to those in the South West who have the
highest debt (£7,902).
% of people living in
% of people living in committed House
Region committed relationships Salary Debt
relationships who want children prices
with two or more children
East of England 10% 39% £1,981 £4,742 £193,026
London 28% 28% £2,544 £7,776 £306,863
East Midlands 14% 46% £1,960 £3,897 £180,441
West Midlands 16% 42% £2,073 £4,250 £174,148
North East 8% 42% £1,812 £4,797 £150,862
North West 14% 45% £1,954 £6,243 £172,789
Scotland 11% 41% £2,014 £4,352 £169,509
South East 16% 41% £2,429 £5,185 £255,896
South West 15% 44% £1,839 £7,902 £216,262
Wales 9% 47% £1,579 £7,527 £201,705
Yorkshire 16% 43% £1,579 £6,622 £162,740
UK 15% 41% £2,062 £5,878 £205,144
“However, while these are all positive steps, many families appear
to be looking at short-term goals rather than considering how they
will prepare for their retirement. Employers have the opportunity to
play a key role in helping UK families to make positive steps towards
a financially secure retirement and we urge them to ensure their
employees understand what needs to be done.”
Paul Goodwin, head of pensions marketing, Aviva
The Aviva Family Finances Report was designed and produced by Wriglesworth Research. As part of this 4,037 UK
consumers - aged between 18 and 55 - who live as part of one of six family groups were interviewed between
December 2010 and April 2011. This data was combined with additional information from the sources listed below
and used to form the basis of the Aviva Family Finances Report.
Technical Notes
● A median is described as the numeric value separating the upper half of a sample, a population, or a probability
distribution, from the lower half. Thus for this report, the median is the person who is the utter middle of a sample.
● An average or mean is a single value that is meant to typify a list of values. This is derived by adding all the values
on a list together and then dividing by the number of items on said list. This can be skewed by particularly high or
low values.
For further Information on this report and the Aviva Understanding Consumer Attitudes to Savings Report, or for a
comment, please contact Sarah Poulter at the Aviva Press Office on 01904 452828 or sarah.poulter@aviva.co.uk