Savings in the Balance: Managing risk in a post-crisis world

The UK’s household savings rate has been falling for decades and there are ample reasons to be concerned about the financial health of households.

Interest rates remain low and are likely to rise only gradually, while the financial crisis has left consumers hyper-aware of the risks involved in investing. Personalised advice about investment and ways of earning higher returns has become more difficult to access. And even when households do overcome the barriers to investment, returns have fallen as a result of new macroprudential regulations. We’re living in a ‘new normal’, where returns are lower but we are living for longer and need to save more.

We analyse why, when and how households choose to save, the factors that prompt them to begin investing and the type of advice they seek. In this report we offer new policy recommendations to boost household savings rates and unlock investment.


  • We live in new economic times – a safer financial system, slower growth, lower interest rates – and saving and investing behaviour has responded to these changes. The rewards of saving are low by historic standards and so people are saving less. Although there have always been substantial barriers to investment, reaching the stage of investing is now harder and fewer people are getting there. Bringing people back to saving and investing will require policy changes that both respond to the new macroeconomic reality and address the obstacles at individual level.
  • A big barrier to better savings behaviour by individuals is the perception of risk. Our work finds that many people have more savings in cash than might be ideal and this limits the returns they can achieve. The evidence is that long-run annualised returns on investment are much less volatile than many people might assume, and that over the lifetime of a long-term investment like a pension higher risk assets like equity will significantly outperform cash in almost all instances. We need to ensure consumers can see the benefits of investing, not just the potential costs.
  • For too many people the journey towards having confidence in planning their financial affairs is incomplete. There have been recent improvements in developing financial awareness among young people at an earlier age and there are initiatives to increase financial literary. But financial confidence is a step beyond.


  • To bring savers and investors back to the equity market, we recommend removing stamp duty on all share transactions by retail investors, building on the success of abolition of the tax in the AIM growth market.
  • The government should create an additional £2,000 tax-free threshold for people to invest in bonds via an ISA.
  • There should be an earlier window for exercising freedom and choice in pensions saving at age 35 – when our survey finds savers are most likely to drop out of their pension plan due to cash flow pressures.
  • Advertising and marketing material should focus on this long-run information rather than merely present year-by-year returns. Equally people could be reminded that holding savings in cash puts them at risk of losing their value by way of inflation.
  • We should be using life-stages such as getting a National Insurance card, taking out a student loan and reaching 35 – as mentioned above – to help more people to achieve financial confidence.

Download The Report: PDF

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