Scottish Friendly warns that households are cutting down on saving and investing

Latest data from the financial mutual and the ONS shows the savings squeeze is starting to restrict Britons ability to put money aside

Leading financial mutual Scottish Friendly has today warned the cost-of-living crisis is officially restricting UK households’ ability to save and invest. Latest ISA data from the ONS shows declining ISA subscriptions in 2020/2021, a trend reflected in Scottish Friendly’s own Investor Index data from Q1 2022.

ONS data published yesterday on ISA subscriptions in 2020/2021 paints a mixed bag, with overall subscription numbers down over the period. On the upside, investment ISAs have seen an uptick, putting the proportion between cash and investment ISAs closer together than it has been for some time.

However, Scottish Friendly’s Q1 2022 Investor Index data suggests that the squeeze on savings and investments is only going to worsen due to the current cost of living crisis.

The Scottish Friendly Investor Index tracks sales of adult investment ISA policies and the total value of these new policies among its UK-wide customer base.

The index shows young people appear worst affected by belt-tightening, with new policy openings among 18-34-year-olds falling 15%, while 35-49-year-olds saw a 13% decline and 50-64-year-olds down 9%. However, among the oldest cohort new policy value was down the most, -12%, suggesting older savers are continuing to invest but cutting contribution levels.

Regional data from the ONS also shows Scotland is lagging behind its English and Welsh peers when it comes to average holdings, a worrying trend north of the border.

Meanwhile Scottish Friendly’s data showed in Q1 2022 Wales saw the smallest decreases in new ISA policies being opened of any region in the UK, falling just 5%. The East Midlands saw the biggest decline with new policies down 17%.

ONS Junior ISA (JISAs) figures reveal the number of JISAs opened has fallen, but investments now make up a larger proportion of the mix. In the Scottish Friendly Investor Index in Q1 2022, new JISA policy openings surged 44% quarter-on-quarter, but values dropped by 31% - indicating parents are putting money to work for their kids but saving less overall.

Kevin Brown, savings specialist at Scottish Friendly, comments:

Households’ ability to invest is being quickly eroded by the cost-of-living crisis, as Scottish Friendly’s own data from Q1 2022 reflects.

Regionally, Scotland is lagging behind other parts of the UK in the ONS data. Our Q1 2022 figures confirm this trend, with Wales faring best with just a 5% decrease in new ISA policies. The regional variances suggest that different parts of the UK are being hit harder than others by cost-of-living increases. Families are also saving smaller amounts into JISAs suggesting a desire to save for kids, but a lesser ability to do so successfully.

Inflation is due to get worse before it gets better, but hopefully, in the not-too-distant future, rising living costs will begin to ease off, with UK households’ ability to save and invest beginning to improve.

Remember that the value of investments can go down as well as up and you could get back less than you paid in. Tax treatment depends on individual circumstances which can change in the future