As Covid restrictions continue to ease, there are signs of improvement for UK household finances too.
The latest research from insurer Scottish Widows shows continued improvement for household finances in the second quarter of 2021. Savings trends improved, and there was a more positive long-term outlook, as the easing of lockdown measures helped households strengthen their balance sheets.
There was also an improvement in job security sentiment, as more workers returned to employment from furlough. On a seasonally adjusted basis, the headline index rose from 42.0 in the first quarter to 44.7 in the second quarter. This index measures overall perceptions of financial well-being. While an index reading below 50 indicates a deterioration in financial well-being perceptions, this is now the weakest decline since the start of the pandemic.
On a monthly basis, the data suggests a strengthening performance within the quarter, as June’s index reading was the highest recorded since last February. One factor contributing to improved household sentiment in the second quarter is a reduced financial strain for households. For the first time since the start of 2016, UK households believe their financial well-being will improve during the next year. 18 to 34-year-olds are especially optimistic about their financial outlook.
Jackie Leiper, Pensions, Stockbroking and Distribution Director, Scottish Widows, said:
As UK governments take a reasonably cautious approach to opening back up from lockdown, there are clear signs of growing consumer confidence.
The more positive picture we can see this quarter is that more households are planning to use savings they have made during the pandemic to bolster their financial resilience.
There was also good news for long term financial planning, with more than two-thirds saying that they did not expect to have to delay retirement and around one in seven planning to increase regular pension contributions over the next 12 months.
The pandemic has led more young people to reconsider their financial priorities when it comes to protection, but although more have taken out insurance since March 2020, the majority of UK households remain exposed without life insurance, income or mortgage protection in place.
The near-term outlook for financial well-being was also much brighter during the second quarter, as many employees saw income rebound as workplace activity picked up and sentiment surrounding job security reached its highest for two years. Overall, UK households are now more optimistic towards their finances over the next 12 months than at any time since Q1 2016.
Digging into the data, fewer households are cutting back on their saving for retirement, with 16% of households reporting a decline in the amount saved. In the previous two quarters, this stood at 20%. The data also shows that 44% of households maintained their contributions to retirement savings, compared to before the onset of the pandemic. Looking to the future, one in seven households expect to increase their regular retirement savings in the next year, with the pandemic placing greater importance on future planning.
For broader financial resilience, 41% of respondents said they had made additional savings since last February. Moreover, higher earners reported saving even more, with 67% putting aside more money during the pandemic, compared to 18% of lower earning households. Most households expect to hang onto some of their savings during the next year, suggesting that some of the pandemic savings will be allocated towards long-term financial goals.
The survey also revealed that the pandemic had changed our attitudes towards preparing for the worst to happen. For example, 9% of people took out a life assurance policy since the start of the pandemic, and 6% obtained cover for mortgages, medical bills, income and critical illness.