abrdn’s new Savings Ladder Index aims to help close the savings and investment gap

abrdn is a business that stretches from asset management (where we look after the investments of millions of people), to supporting a large proportion of the UK’s financial advisers, to offering one of the leading direct investing platforms on the market.

Consequently, it’s certainly in our interest to see more people plan, save and invest for the future. But it’s also a critical challenge for our society. If we can encourage more people to save and invest, that will be good news for everyone.

And the UK certainly needs to encourage a savings and investing culture. Our research shows that while three-quarters of UK adults are savers, cash is favoured by three in four of those savers.

Yet while remaining in cash can seem the safest option, investors are taking a considerable risk because inflation could erode the buying power of that cash over time. Investing in a balanced portfolio of equities and bonds can help protect against inflation – with equities driving growth and bonds shielding investors against economic and geopolitical turbulence.

Moreover, mobilising that cash could boost capital markets, help to solve the puzzle of the UK’s low productivity – a key driver of real economic growth – and reduce our reliance on foreign investment.

abrdn’s contribution to the drive to kickstart a savings and investment habit

To help stimulate interest in saving and investing, abrdn has launched a new ‘Savings Ladder Index’ to track changes over time in how Britons are thinking about saving and investing for the future, as well as how much they are saving and investing.

The index measures the country’s overall ‘Propensity to Save and Invest’ every six months by looking at people’s ‘Propensity to Save’, their ‘Propensity to Invest’ and their outlook for the economy – generating a score for each.

The scores consider factors including: how well people understand savings and investments, their risk tolerance, and their confidence in taking out and managing financial products.

The first survey found that the UK’s average Propensity to Save and Invest – and hence abrdn’s Savings Ladder Index – stood at 45/100.

UK adults overall had a higher propensity to save, pulled down by a lower propensity to invest and a lower economic outlook score.

Appetite for risk

The majority (55%) of UK adults have a ‘low risk tolerance’ when it comes to investing, which would see them holding their savings mostly in cash or bonds. Risk aversion is high across age groups: 40% of 18–34-year-olds define themselves as having a low appetite for risk, as do 53% of those aged 35–54 and 66% of the over-55s.

The research also found an extremely gloomy outlook. Less than a fifth (17%) of UK adults are confident about the future UK stock market and only 16% are confident about the UK economy on a short-term view, based on the current situation – contributing to people’s low propensity to save and invest.

Even so, when asked where they would invest £1000 if they were wanting to grow it for the long term, people’s top choice was UK stocks and funds. More than a third of people chose the UK (35%), followed by the US (16%) and Europe (11%).

Although past performance can’t predict the future, the choice of UK stocks and funds is vindicated by historical data which show that, in the long run, UK stocks do usually recover from reversals. (reference to chart above)

Savings, investment and pension gaps

The data also revealed that the UK has a significant investment gap, whereby the bottom half (51%) of UK investors by value hold far less collectively than the top 5% of investors. The top 5% of people with the most investments hold almost half (47%) of all investment wealth in the UK (or £1.1 million per person on average).

This 5% of investors equates to a fairly small pocket of the UK population: around 798,000 UK adults. At the other end of the scale, the bottom 51% of investors by value hold just £14,900 on average – 7% of total investment wealth. This is a much larger group and equates to around 8.46 million UK adults.

The largest gaps in saving and investment levels are between women and men, between those with low incomes and high incomes, and between those with poor financial literacy and those with high financial literacy.

Such a large gap between the richest and poorest investors is likely down to a score of problems and deep-rooted inequalities. However, measuring the gap over time and assessing its demographic differences are important steps in the journey to closing it.

abrdn’s proposals to help close the gap

In our Savings Ladder Manifesto, launched in February 2024, abrdn made several policy recommendations for how to address the savings and investment crisis and encourage a ‘Savings Ladder’ culture in the UK. They included:

We believe these measures, when combined, would help people adopt a savings and investing habit that would help secure their financial future and contribute to the UK’s overall prosperity.

The data used in the Savings Ladder Index is from a survey conducted between 10-17 May 2024.