The wealth and saving of UK families on the eve of the crisis

Abstract

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Measuring living standards with income and consumption: evidence from the UK

“…53 Figure 43, taken from Crossley and O'Dea (2010), partially addresses this: it shows the median saving rate by age implied by the same LCFS data as we analyse here. 54 The savings rates implied by LCFS rise strongly with age for those aged over 60; equivalently, many elderly households report cash spending levels considerably lower than their cash income.…”

“…The levels of expenditure, income and saving implied by the LCFS can be grossed (using population grossing weights) to an aggregate level and compared to similarly-defined aggregates shown in the National Accounts 41 , and these comparisons are shown in Figures 13 and 14 (taken from Crossley and O'Dea, 2010). The ratio of total expenditure in the LCFS (grossed to national population levels using survey weights) to the total published in the National Accounts (we refer to these as expenditure and income 'coverage') has been falling steadily since at least the early 1990s, whereas that for income has been relatively stable.…”

The adequacy of wealth among those approaching retirement

“…In addition to the point made above that lowerincome individuals may need greater income replacement in order to have an income that is above the poverty line, higher-income individuals also tend to have higher savings rates during working life than lower-income individuals (Crossley and O'Dea, 2010). If this saving is being undertaken in order to accumulate a certain amount of wealth that is achieved at or before retirement, then -for a given level of expenditure -higher-income families will need a lower replacement rate than families with slightly lower levels of working-life income and pre-retirement saving.…”

“…This indicates that, while those with the most education are more likely to have higher lifetime earnings and be covered by private pensions (Crossley and O'Dea, 2010), they -at the median at leasttend to replace less of their pre-retirement income with their pension income than those with less education. However, this result changes when we move to a replacement rate that is calculated using a broader measure of retirement income.…”

Household consumption through recent recessions

“…Crossley & O'Dea (2010) show that, on average, owner-occupiers are more likely to have private pensions and have higher liquid financial wealth than renters. A partial (proximate) explanation is that during the Great Recession, interest rates fell dramatically while in the previous two recessions interest rates remained high, with the bank base rate increasing in the early part of the 1980s recession before falling slightly, and the bank base rate falling through the 1990s recession but at a pace that was more moderate than the dramatic reductions that were seen in 2008 and in 2009.…”