Britons squirrelling more away than in 2023 but IFAs urge doing it right

Last week (June 28), the Office for National Statistics reported that the average UK household saving ratio was estimated to be 11.1 per cent in the first quarter this year.

This is up from 10.2 per cent in the last quarter of 2023.

According to the ONS: “Following seven quarters of pension saving contributing more to the savings ratio, this is the second quarter that non-pension saving contributed more to the savings ratio.”

While advisers welcomed the news that savers were putting more aside, they suggested the strategy to stuff cash might need to be rethought, as savers could end up unwittingly falling into tax traps.

It's a clear sign that households are becoming more financially savvy.

Dariusz Karpowicz, Albion Financial Advice

For example, Samuel Mather-Holgate, IFA with Swindon-based Mather and Murray Financial, said while the savings ratio was a "good barometer of economic sentiment", he warned that people should consider the tax-efficiency of pension saving rather than simply piling up cash. 

He explained: "With easy access savings accounts, such as Chase, paying over 5 per cent, more people are making use of their money rather than spending it or stashing it in their pensions.

"With higher interest rates and gross interest payments, more savers will be caught up in having to complete a self-assessment this year."

Earlier this month, research from Standard Life revealed people have been withdrawing from pensions to put the money into high interest cash accounts, but not realising anything that is taken above the 25 per cent tax-free amount could be hit with income tax.

At the time, Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group said: “Our analysis shows there are hundreds of people out there paying huge amounts of tax to access their pension. It’s impossible to know whether their individual circumstances warranted them taking such a big tax hit but for the vast majority of people it’s something you’ll want to avoid.

“Fully encashing a large pot will almost always mean a very large tax bill, sometimes taking away many years’ worth of savings.

"Often when people fully withdraw their pension it is simply to move the money to their bank account. Not only does this mean their savings become eligible for tax but it also means they’re potentially giving up investment returns."

However, most advisers were encouraged to see the ONS stats, as it meant a higher number of people were putting aside more each month, as it indicated Britons were becoming more savvy about the need to save rather than spend.

Dariusz Karpowicz, director at Doncaster-based Albion Financial Advice, said: "The rise in the household saving ratio to 11.1 per cent is a pleasant but welcome surprise.

"It appears that the combination of increased wages, reduced National Insurance contributions and a little caution amid the economic uncertainty is leading people to squirrel away more money.

"Instead of splurging, households are putting their extra income into savings accounts rather than pensions, which gives them easier access in these unpredictable times.

"It's a clear sign that households are becoming more financially savvy and are building their rainy day funds."

simoney.kyriakou@ft.com