Savings and investments to decline for high earners in 2011

The amount saved or invested each year by households in the UK with an income over £100,000 is expected to decline by 10% in 2011, according to new research from HSBC.

HSBC surveyed 1,000 UK consumers with household income of over £100,000 to ascertain their savings habits in 2010 and their expectations for 2011. This research shows that the average amount that will be added to savings pots in 2011 will decline from £20,314 in 2010 to £18,255.

In 2010 the largest proportion of savings by high earners was invested into instant access bank and building society accounts (£4,732) followed by ISAs (£3,655) and fixed rate bonds (£2,160) which in total represent half of all savings and investments.

Company (£2,451) and personal (£2,075) pension schemes also had high proportions of investments at around 10% of total savings and investments each. The lowest proportion of savings was invested into commercial property (£302) followed by investment funds (£1,456), residential property (£1,670) and individual stocks and shares (£1,814).

Looking forward to where high earners will be saving in 2011 however, almost all types of savings and investment products will see a decline. Investment into ISAs will be the only area to see an increase, of 8.4% from £3,655 in 2010 to an expected £3,961 in 2011, most likely reflecting the increase in ISA allowance.

The largest decline in savings and investments vehicles for high earners in 2011 are expected to be in fixed rate bonds (down 34.3%), unit trusts and investments funds (down 27.5%) and commercial property (down 23.2%).

Those earning between £100,000 and £150,000 will cut back twice the proportion of savings than those with an income of over £150,000 in 2011. Their contribution to savings and investments is expected to decline by 12.1% compared to a decrease of 6.1% for those earning over £150,000.

However, households in this income bracket will increase their savings into ISAs by 2.9% this year and all other savings vehicles will see a decline with commercial property (sown 35.6%) and fixed rate bonds (down 35.2%) seeing the biggest decreases of over a third.

Households with an income of over £150,000 will increase their contributions into ISAs (23.7%) in 2011, taking advantage of the tax breaks available to them as they see their income tax payments rise to 50% in addition to individual stocks and shares (10.9%), buoyed by the recent performance of the FTSE. Their biggest decreases in investments will be into unit trusts and investment funds (down 35%) and fixed rate bonds (down 32.3%).

‘High earners were hit with a number of additional taxes in 2010, with the introduction of a 28% capital gains tax rate, the introduction of the 50% tax rate coupled with the removal of their income tax personal allowance and the withdrawal of child benefit, which could all affect their ability to save,’ said Richard Brown, head of Savings and Investments at HSBC.

‘However, despite widespread concern over rising unemployment and the VAT rise this month, it seems affluent consumers have decided to defer their savings for the time being, instead choosing to increase expenditure to maintain their lifestyles. It will remain to see as the year progresses if this is indeed the correct decision,’ he added.