Over the next two decades, demographic trends are expected to have a limited impact on the evolution of U.K. household savings and financial wealth accumulation. This finding contrasts with other developed countries and is mainly a result of unique U.K. household savings behavior. MGI analysis suggests that – absent changes in household age structure, savings behavior or returns on financial assets – the net financial wealth of U.K. households will be slightly lower than in the historical period but will remain at a robust level. The annual real growth of household net financial wealth is expected to decline from an impressive 5.1 percent over the 1975-2003 period, to a still healthy 3.2 percent between 2003 and 2024., While this slowdown is meaningful in the U.K. context, it is much milder than in other developed countries. At 3.2 percent, our estimate of the annual growth rate of U.K. household financial wealth is two times higher than for the U.S. for the same period.
Compared to other countries, the decline of household growth in the U.K. will be limited, largely a result of higher historical birth rates. Higher birth rates will also lead to a relatively moderate aging trend, with the median age increasing by only 3 years over the next two decades. The impact of aging on savings is further muted by the fact that the U.K. saving pattern differs from other countries since older people actually tend to save more.
The slight decrease in the number of households, the mild aging, and the unique savings pattern of U.K. households result in a relatively robust projected growth rate of net financial wealth. Therefore, the U.K. must confront a different set of issues than other countries in dealing with the demographic transition. The U.K. must consider the consequences of historical and future low savings, notably for retirement purposes. An additional challenge for the U.K. is how to maintain the relatively high rate of financial asset appreciation, which is expected to be an important driver of the growth in net financial wealth. Launch this chapter (PDF - 1.19 MB)
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