More Irish people saving regularly during Covid-19 lockdown

Significant shift in attitudes to retiring occurred during lockdown, with a greater emphasis on comfort and wellbeing in later years.

There has been a significant spike in sentiment towards regular savings, the latest Bank of Ireland Savings and Investment Index has found.

The Index has revealed that slightly more people are saving regularly in Q2 and there has been a significant spike in people thinking it’s a good or very good time to save.

“Improved optimism about retirement, however, stands in contrast to the numbers who are making adequate provision for retirement”

With less options for spending, the Savings Index rose to its second highest level since it started in 2017.

However, the Index shows that attitudes are likely to shift again with less people seeing the need for saving in six months’ time, which may indicate a rise in spending as the reopening progresses.

Volatile market activity

In what was a very volatile period for investing with equity markets dropping by 30pc and recovering all of these losses in a matter of weeks, attitudes to investing became quite divided.

The Q2 Investment Index saw an increase in those saying they saw it as a good time to invest while there was also an increase among those who saw it as a bad time to invest.

Surprisingly, there was a significant increase in our optimism about retirement, possibly as a consequence of people having time and space to reflect on their future.

“The challenges and difficulties we have faced as a country in the past quarter have been met with great resilience and it appears that this is reflected in how we view our finances also,” said Kevin Quinn, Bank of Ireland Investment Markets.

“Attitudes to savings have strengthened as might be expected during a period of economic strain of this kind – less spending saw an increase in cash balances for some and those who could afford to put cash aside.

“With greater uncertainty, the precautionary reason for saving has also come to the fore, and we’ve seen an increase in those who think it’s a good time to save in the short-term.

“More surprisingly, perhaps, is a significant increase in our optimism about retirement. Perhaps as a consequence of people having had time and space to reflect on their futures, there has been a growth in optimism about what life can be like in retirement.

“Thirdly, despite huge volatility in investment markets, attitudes to investing showed a modest improvement, largely driven by improvements in expectations about the investing environment in the months ahead.”

The Savings Index rose from 99 to 106 in the second quarter of the year, the highest level since the Index started in 2017.

The improved saving sentiment was squarely down to stronger attitudes to saving in the period.

The percentage of people saving regularly continued to rise steadily from 46pc in Q4 2019 to 50pc in Q1 2020 and 51pc in Q2 2020., but there was also a very significant rise in people’s short-term outlook for savings.

About 55pc of people now think it’s a good or very good time to save, up from 38pc in Q1.

When asked to consider six months into the future, the number falls back to 42pc which suggests that spending habits will quickly respond to the re-opening of the economy.

“Given the backdrop of the crisis, it seems intuitive that people would increase their appetite for saving and the fact that we saw a big move upwards in those who see it as a good time to save bears this out,” said Quinn.

“However, the reality is that spending habits were constrained in the lockdown period and we can see that attitudes are likely to shift again with less people seeing the need for saving in six months’ time.”

Some who invested during lockdown reaped rewards

The Investment Index rose to 94 in Q2 from 90 in Q1 with a small improvement in the investment outlook offsetting weaker short-term attitudes towards the immediate environment.

In a very volatile period for investing – with equity markets dropping by 30pc and then recovering three-quarters of these losses in a matter of weeks, attitudes to investing understandably became quite divided.

Some saw opportunity in the crisis conditions with 32pc of people saying they saw it as a good time to invest compared with 23pc in Q1.

By contrast, there was also an increase in people who saw it as a bad time to invest with 47pc thinking so compared with 32pc in Q1. This falls to 33pc when asked how they might view things in six months’ time.

“With the spike in investment market volatility that came with the Covid-19 crisis, short-term opinion became quite divided,” said Quinn.

“Many people understandably viewed events as meaning it was a poor time to invest and held back plans. In contrast, almost a third of people saw opportunity amidst what turned out to be a short-lived downturn in investment markets. With the bounce in markets since late March, those who followed that viewpoint have been well rewarded.”

More optimism about retirement plans

One of the most striking findings from the survey was the significant increase in the Retirement Optimism Index which showed a 12pc rise in Q2, increasing from 107 in Q1 to 24pc in Q2. Financial preparedness for retirement rose from 103 to 109, whereas comfort in retirement rose from 111 to 131.

There was also an improvement in the number of people who felt they would face a difficult time when asked about comfort in retirement, dropping from 33pc of people in Q1 to 24pc in Q2. There was also an improvement in how people felt about their financial preparedness for retirement, up 61pc in Q2 compared with 57pc in Q1.

These sentiments are in stark contrast to the fact that 65pc of respondents said they had made no pension provision for the last 12 months.

“The shift in attitudes we are seeing about retirement was the surprise result in the survey,” said Quinn. “It suggests that attitudes to retiring may have shifted somewhat as a result of the lockdown period with a greater emphasis on comfort and wellbeing in later years. Improved optimism about retirement, however, stands in contrast to the numbers who are making adequate provision for retirement.”

Written by John Kennedy (john.kennedy3@boi.com)

Published: 15 June, 2020