OREANDA-NEWS. April 03, 2015. Falling inflation has given over-55s back their financial freedom and boosted saving habits as essential spending has fallen by 7% in a year, according to new research from Aviva.

UK inflation reached a 15 year low of 0.5% in December, driving down over-55s’ outlay on basics such as food and utilities. At the same time, Aviva’s Real Retirement research (Q4 2014) shows the average income among over-55s experienced a 3% annual uplift.

Yearly disposable income has risen by ?1,032 (6%) since Q4 2013 and by ?1,440 (9%) compared to Q4 2011. This has led to a significant rise in over-55s standard of living and helped to boost savings, as well as reduce unsecured debt.

Standard of living rises as over-55s gain an extra ?86 in monthly disposable income

In Q4 2014, over-55s received an average of ?1,924 in monthly income - a 3% increase year-on-year and a rise of 8% since 2011.

While average incomes have risen, over-55s’ monthly expenditure on essentials (incorporating food, housing, utilities and transport) has fallen from ?460 in Q4 2013 to ?427, resulting in monthly savings of ?33 (or ?396 per year). 

This has been driven by a fall in spending on food. Over-55s’ average monthly food bill reached a record high of ?210 in Q4 2013: since then, it has fallen to ?196, suggesting over-55s are seeing the benefits of falling food prices.*

Aviva’s research uses disposable income (the difference between income and essential expenditure) as a measure for standard of living. It shows over-55s had an average of ?1,496 in monthly disposable income in Q4 2014: a rise of 6% year-on-year and 9% higher than Q4 2011’s figure of ?1,376. 

Over-55s now have an additional ?86 in monthly disposable income compared to last year, adding up to an extra ?1,032 per year. Compared with Q4 2011, their disposable income has risen by ?120 a month or ?1,440 annually.

Table 1: Over-55s’ average monthly income, essentials expenditure and disposable income 

  Average monthly income (mean) Average monthly essential expenditure (mean)

Average monthly disposable income
(mean)

Q4 2014

 ?1,924 ?427 ?1,496
Q3 2014

?1,895

 ?416 ?1,479
Q4 2013 ?1,870 ?460 ?1,410
Q4 2011

?1,787

 ?410 ?1,376
Annual change ?54 (3%) -?33 (-7%) ?86 (6%)
Three year change ?137 (8%) ?17 (4%) ?120 (9%)

Note:  All numbers are rounded to nearest ?1 

Over-55s use boost in spending power to tackle debt and increase savings pots

This boost in disposable income has given over-55s the confidence to spend more on luxury items and recreation. Monthly spending on entertainment, holidays and recreation has risen steadily since Q4 2011, when the average monthly spend was just ?59. This rose to ?63 in Q4 2013 and increased by an additional 14% to ?72 per month in Q4 2014.

However, over-55s are also using their improved financial freedom to reduce their debts and grow their savings pots. Average monthly savings stood at ?214 in Q4 2014: an increase of ?39 (22%) year-on-year from ?175 in Q4 2013 and ?80 (60%) increase from ?134 in Q4 2011.

At the same time, over-55s’ unsecured debt has fallen significantly since 2011 as they have found more income at their disposal. The average debt has dropped from ?2,812 in Q4 2011 to ?1,527 in Q4 2014: a 46% reduction. In the past year alone, over-55s have successfully reduced their average unsecured debt by 10% (down from ?1,703 in Q4 2013).

The amount owed on credit cards has decreased significantly, almost halving from ?1,033 in Q4 2011 to ?551 in Q4 2014. In the past year over-55s have cut their credit card debt by 23% from ?713 in Q4 2013.

Table 2: Average total debt and savings among over-55s

  Average monthly savings (mean) Average unsecured debt among over-55s (mean)

Q4 2014

 ?214 ?1,527
Q3 2014

?196

 ?1,697
Q4 2013 ?175 ?1,703
Q4 2011

?134

 ?2,812
Annual change ?39 (22%) -?176 (-10%)
Three year change ?80 (60%) -?1,285 (-46%)

Despite improving finances, concerns over the cost of care soar

With over-55s’ standard of living improving significantly over the past year and inflation falling to new lows, 52% still see the rising cost of living as a threat to their finances in the next five years, but is down from 76% a year ago (Q4 2013).

However, concerns over the cost of care in old age have soared in the past year. Only 4% of over-55s saw the need to pay for care for themselves or their partner as a threat to their finances in Q4 2013, virtually unchanged from Q4 2011 (2%).

But since 2013, fears about the cost of care have spiralled, with 19% of over-55s citing this as a threat in Q4 2014.

These financial worries are clearly rooted in people’s general concerns about the health-related aspects of growing older. A quarter of over-55s (24%) say that ill-health worries them the most about ageing, while 23% are most concerned about losing their mental faculties, for example through dementia. Over one in ten (12%) worry most about being dependent on other people.

Clive Bolton, Aviva’s managing director of retirement solutions, said:

“The rise in disposable income is a welcome sign that over-55s’ standard of living is on the up. It is a testament to their resilience and adaptability that they have come through the recession in such a strong position. After years of cutting back and struggling to make ends meet, their financial circumstances are clearly improving and they are finding more breathing space from month to month. This extra freedom is helping them to reduce their debts and increase their savings pots, two habits that will stand them in good stead during retirement.

“Planning ahead is the best way for over-55s to arm themselves against any unexpected costs in retirement. It is never too early to start building up a healthy savings pot, and whittling away any debts will help to free up extra funds in retirement. If and when inflation rises, careful planning will help to ensure more people can take this in their stride.”

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-ENDS-

* The Office of National Statistics Consumer Prices Index shows there was a 1.9% fall in food prices in the year to December 2014

If you are a journalist and would like further information, please contact:

Aviva Press Office: Diane Mangan: 07800 691 714 or diane.mangan@aviva.co.uk
The Wriglesworth Consultancy: Andy Lane or Rachel Morrod: 0207 427 1400 or aviva@wriglesworth.com

Methodology:

The Real Retirement research series is produced by Aviva and ICM Unlimited. The Q4 2014 findings involve 1,197 UK consumers aged over 55, with 21,597 in total having contributed to the research since February 2010. Wherever possible, the same data parameters have been used for analysis for the duration of the series, but some additions or changes have been made as other tracking topics become apparent.

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