Savings: Over 75’s see large drop in their savings

A new report from Aviva has shown just how far savings levels have dropped amongst more elderly pensioners as the tough economic climate bite hard.

Aviva, the large insurer and pension provider, interviewed 14,000 people aged over 55 and found that falling incomes and rising prices have caused many people over the age of 75 to dip into their savings.

Over 75’s hit the hardest

It is clear that the over 75’s have been particularly badly affected by the financial crisis, with this group seeing their average savings fall from £22,500 two years ago to just £13,000 now.

Financial experts believe this group have been hit the hardest because they do not have the option to continue working, having already retired, and for many a large proportion of their income is fixed, having bought a level Annuity, which does not increase annually in line with rising prices.

In the face of rising prices and static incomes it seems that many have had no choice but to dip into their savings.

This was confirmed by Aviva who said: “This age group have seen their savings pots whittled down as they dip into their capital to boost their income in order to meet rising costs.”

However, the picture was better for younger generations with people over the age of 55, but below 75, managing to increase their savings slightly.

The report found that the average savings level for people over 55 had increased slightly to £15,756 compared to £13,900 two years ago. The main reason behind this increase seems to be that people in this group, who have not yet retired, will have seen potentially modest wage rises compared to the fixed incomes of many pensioners. Furthermore, low mortgage interest rates will have helped some to save more and those people who have retired may have had their savings boosted by the tax free lump sums from their pension.

‘Perfect storm’

Since the start of the financial crisis pensioners have been hit particularly hard. Any pension calculator shows how far Annuity rates have fallen, reducing significantly the amount of income a pension can buy. Prices have risen considerably with pensioners suffering a higher rate of inflation that younger generations and interest rates have been kept at historically low levels by the bank of England in an effort to stimulate the economy.

It is clear that with prices rising, and interest rates low even on the best buy savings accounts, many pensioners have had to eat into their capital rather unable to live off their pensions and the interest from savings accounts.

The report comes at a time when the debate into universal benefits for pensioners, for example the Winter Fuel Allowance, seems to be starting up again. At least one organisation representing older generations believes this is wrong, with Ros Altman of Saga saying: “Older people are desperately struggling with the cost of living. We need to squash on the head this idea that pensioner benefits should be means-tested. They have been hit hard.”