Savings raided to cover shortfalls
Piggy banks have been raided to the tune of £60 billion by UK adults over the past year, to try and make up income shortfalls.
According to research from global asset manager Schroders, the unstable economic climate has forced around 31% of adults to use their personal savings or investments to cover living expenses, spending on average £4,600 each.
More women then men have had to dip into their savings with 34% using their capital reserves compared to 28% of men.
People verging on retirement were most likely to use their savings, with 36% aged between 55-64 and 33% of those over 65 relying on investments to boost their income.
Schroders says this is worrying because adults in this age group are less likely to be able to rebuild their savings if they have retired, or are about to retire.
However, the firm predicts that the number of older savers drawing on their savings to cover living expenses will rise, due to the government's announcement to index private sector pension increases to the consumer prices index, in an effort to align public and private sector pensions.
This in turn will likely make increases to final salary schemes less generous.
Robin Stoakley, managing director or Schroders UK intermediary Business, says: "The amount of capital being drawn down suggests that it is not just rainy day funds that are being drained, but a significant proportion of individuals' long-term savings.
"This is particularly an issue for those nearing or in retirement as they have less opportunity to rebuild their savings and declining annuity income proves insufficient to cover their day to day expenditure."
The region with the highest percentage of residents using up their savings was the East Midlands with 35%, followed by those in London spending 34%, and the lowest was Wales with 23%.
Nick Kirrage, co-manager of the Schroder Income Fund, says it's "worrying" that people are eroding their investments and advises invesors to look at equity income funds that provide a higher income and longer-term capital protection.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.