Easing of lockdown lifting pressure on household finances

The research showed that there were improved trends for savings and a more positive outlook towards the longer term, as the easing of lockdown restrictions in Q2 helped firm up household balance sheets. Sentiment around job security and income picked up, as workers from many shutdown sectors returned from furlough.

The headline seasonally adjusted index research which measures households’ overall perceptions of financial wellbeing, rose from 42.0 in Q1 to 44.7 in Q2, signalling the weakest deterioration in UK household finances since the Covid-19 pandemic began. Monthly data pointed to a strengthening performance over the course of the quarter, with June’s reading the highest seen since last February.

The reduced financial strain in the second quarter also fed through to a strong rebound in sentiment towards household finances over the next 12 months. For the first time since Q1 2016, UK households expect their financial wellbeing to improve over the coming year, with 18–34-year-olds particularly upbeat about their financial outlook.

Jackie Leiper, Pensions, Stockbroking and Distribution Director at Scottish Widows, said “As UK governments take a reasonably cautious approach to opening back up from lockdown, there are clear signs of growing consumer confidence.”

“The more positive picture we can see this quarter is that more households are planning to use savings they have made during the pandemic to bolster their financial resilience. “There was also good news for long term financial planning, with more than two-thirds saying that they did not expect to have to delay retirement and around one in seven planning to increase regular pension contributions over the next 12 months.”

“The pandemic has led more young people to reconsider their financial priorities when it comes to protection, but although more have taken out insurance since March 2020, the majority of UK households remain exposed without life insurance, income or mortgage protection in place.”

“The near-term outlook for financial wellbeing was also much brighter during the second quarter, as many employees saw income rebound as workplace activity picked up and sentiment surrounding job security reached its highest for two years. Overall, UK households are now more optimistic towards their finances over the next 12 months than at any time since Q1 2016.”

Fewer households pared back their retirement savings during the second quarter of 2021, with around one in six (16%) households reporting a drop in the amount saved, down from 20% in the previous two quarters. Compared to before the coronavirus outbreak, new survey data showed that 44% of households have maintained their retirement savings contributions. The percentage reporting a fall in regular funds placed into their retirement pot through the pandemic (14%) was only slightly higher than those signalling a rise (13%). Looking ahead, around one in seven expect to increase their regular contributions to retirement savings in the year ahead, suggesting that for some the pandemic has increased the importance of longer-term financial planning.

Meanwhile, most households (68%) expect to stay on track with their retirement plans despite the pandemic, while just 17% anticipate that they will delay retirement. Where plans have been postponed, the most common reason was financial uncertainty (41%).

In terms of broader financial resilience, 41% of respondents have made additional savings since February 2020, with 67% of the highest earners putting aside more during the pandemic compared to 18% in the lowest income band.

The vast majority (87%) expect to retain at least some of their savings during the next 12 months, suggesting that some of these funds will be put towards longer term goals, with those aged 45-54 the most likely to retain savings beyond the next year (91%).

The data also revealed that the pandemic has led some to reconsider their preparations for the worst. Almost one in 10 (9%) people took out a life insurance policy after the start of the pandemic, while around 6% obtained coverage for mortgages, medical bills, income, and critical illness.

A much-improved picture of workplace activity, incomes and job security was seen during the second quarter, as lockdown measures eased across the UK businesses ramped up operations and staffing levels. Households reported the strongest quarterly expansion in workplace activity since the series began in Q1 2009.

In line with improving UK economic conditions, incomes from employment neared stability during the second quarter, with the respective seasonally adjusted index gaining five points on the quarter and posting only just below the neutral value of 50. This signalled the weakest dip in incomes since the current sequence of decline began a year ago.

The return to work for many staff also eased concerns regarding job security, with UK households the least downbeat for two years. Those in the media, culture and entertainment sector recorded the second-biggest hike in positive sentiment on the quarter, following the phased reopening of the sector. Those aged between 55 and 64 were the most downbeat regarding job security in Q2, while those aged 18-34 were the most upbeat.

Improved sentiment towards job security was also reflected in households’ appetite for major purchases during the second quarter of the year, with more households considering making large purchases such as cars, holidays and large appliances than at any other time since Q4 of 2015.