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Media centre /
Press releaseBRITISH SAVERS REMAIN UNAWARE OF EFFECTS OF INFLATION AND TAX27 January 2005British people remain largely unaware of the detrimental effects of inflation and tax on their savings when choosing a home for their money – and the situation has barely improved since last year – according to research from National Savings and Investments (NS&I), the government-backed savings and investments provider. Almost two-thirds of people (64%) confessed to not taking inflation into account when looking to save when surveyed in January 2005, even though it is currently running at 3.5%. In the previous survey, in February 2004, 66% of people said they did not take inflation into account when saving. At the same time, there has been very little change in the number of people – roughly one in four – who said they did actually take inflation into account. In January this year, 28% claimed to have taken inflation into account, compared to 27% in February 2004. As for taking tax into account, the situation is equally worrying. In 2005, just one in three people, 33%, said they considered tax, compared to 37% in 2004. In both years, more than half of all people (58%) said they did not take into account the amount of tax they would have to pay when choosing a home for their money. “Do you take inflation into account when looking to save in a particular product?”
Younger getting smarter? The positive news is that the number of younger people who have not previously taken inflation into account appears to be falling. In February 2004, nearly three-quarters of 25-34 year-olds (73%) said they did not take inflation into account but, by January 2005, this number had fallen to 61%, fewer than two-thirds. By comparison their parents and grandparents, those aged 55-64 and 65+, are among the bulk of the population who don’t take inflation into account – and the figures are worsening. In this year’s survey, 65% of 55-64s and 64% of those over 65 said they didn’t take inflation into account, compared to 61% and 63% in 2004. Regionally Across the UK there has been little change among attitudes towards inflation. On the positive side, the number of people who said they didn’t take inflation into account has dropped marginally in five regions out of seven. In the Wales and West region, 54% – the lowest nationally – said they didn’t take inflation into account, but this is an improvement on last year’s figure of 62%. And, last year, 70% of people in the North East, Yorkshire and Humber region said they didn’t consider inflation when saving. In the 2005 survey, the figure for this region was down to 67%. In Greater London 66% overlooked inflation, down 1% from last year’s figure of 67%, while in Scotland the number had dropped from 67% last year to 62% in 2005. In the North West, 61% of people said they didn’t take inflation into account, down from 62% in 2004. At 68%, the South East/East Anglia region had the largest number in the UK who said they ignored inflation, up from 65% in February 2004. Although this region has the highest percentage, 67% of people in the East and West Midlands and the North East, Yorkshire and the Humber regions said they didn’t consider inflation. Last year, 65% in the East and West Midlands and 70% in the North East, Yorkshire and Humber region said they didn’t consider inflation. Interestingly, the number of people across the UK who said they sometimes took inflation into account has remained static at 7%. Index-linked Savings Certificates Although the research suggests general apathy towards inflation, despite the effect it can have on the real value of peoples’ savings, there remains a growing level of interest in NS&I’s Index-linked Savings Certificates (ILSC), the only savings product on the high street which offers inflation-beating tax-free returns. The total amount invested by customers now stands at just over £8.5 billion, up from £8 billion in January 2004. How do Index-linked Savings Certificates work? Index-linked Savings Certificates are a three or five-year investment, during which the money invested earns a return directly linked to the headline rate of inflation, otherwise known as the Retail Prices Index (RPI) – currently at 3.5% – plus guaranteed rates of interest. This means the returns outstrip inflation and, as an added bonus, they are tax-free. Anyone aged seven or over can invest from £100 up to £15,000 per Issue (a new issue becomes available each time NS&I changes the interest rate on ILSC). Rates of return Because ILSCs offer a tax-free return that beats inflation, it makes them particularly attractive for higher and basic rate taxpayers. Investment terms and interest rate
(These figures assume the RPI rises by 3.5% each year for the next five years and current rates of tax)Worrying attitudes John Prout, NS&I sales director, said: “It is something of a worry that peoples’ attitudes towards inflation seem to have frozen. Even though we are experiencing a period of relatively low inflation, people who invest their money for more than a few years in an account that doesn’t protect against inflation could see the value of their money diminish as inflation takes its toll. “Inflation really can affect savings and I would urge people to think about this when choosing a home for their money, especially when considering a medium-term investment. “The other important factor to consider is your income tax bracket. An investment in our Index-linked Savings Certificates could prove very profitable for higher rate and basic rate taxpayers.” ENDS Notes to Editors1. The National Savings and Investments survey among 1,017 adults was conducted by TNS via PhoneBus, 14-16 January 2005.2. The rate of inflation is calculated using the Retail Price Index (RPI). The RPI measures the average change from month to month in the prices of goods and services purchased by most households in the United Kingdom (Office of National Statistics).3. National Savings and Investments is one of the largest savings organisations in the UK, offering a range of savings and investments products to 26 million customers. All products offer 100% capital security, because they are backed by HM Treasury.4. NS&I is the exclusive sponsor of The Classical BRIT Awards, the UK’s premier classical music awards show, at the Royal Albert Hall on 25 May 2005.5. Further information and digital images are available from the NS&I media team. An ISDN line is available for interviews.NS&I media teamMark Brooks 020 7348 9301 mark.brooks@nsandi.com |
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