Over the next two decades, demographic trends are expected to have a limited impact on the evolution of UK household savings and financial wealth accumulation. This finding contrasts with other developed countries and is mainly a result of unique UK 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 UK 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 UK context, it is much milder than in other developed countries. At 3.2 percent, our estimate of the annual growth rate of UK household financial wealth is two times higher than for the US for the same period.
Compared to other countries, the decline of household growth in the UK 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 UK 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 UK households result in a relatively robust projected growth rate of net financial wealth. Therefore, the UK must confront a different set of issues than other countries in dealing with the demographic transition. The UK must consider the consequences of historical and future low savings, notably for retirement purposes. An additional challenge for the UK 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.