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Value of windfalls blown away by inflation PDF Print E-mail
News - Latest
Monday, 11 April 2011 07:29

Some 14 million people in the UK have received a lump sum payment of at least £500 in the last two years from bonuses, inheritance and cash gifts from family members but their real value has been rapidly eroding as monies sit in low paying high street accounts.

New research published today (Monday April 11) from global asset manager Schroders shows that almost half, some 49% of those receiving a lump sum of money did not seek any advice on how to invest or spend these funds.

Almost a third, 31%, of those receiving a lump sum  invested this money in a high street savings account, despite instant access accounts paying between a mere 0.16% and 0.23% interest over the last year. With Consumer Price Index (CPI) inflation running at 4.4% in February the real value of these windfalls invested has actually declined over the period.

Schroders is encouraging people to review their investments to maximise returns or see their long term purchasing power decrease. The research indicates people are not exploring the variety of investment options available, as just 6% of those surveyed invested their windfall in stocks and shares and just 2% in unit trusts.

Almost a quarter, 23%, of recipients of financial windfalls used these funds to cover everyday living expenses rather than saving for their future. A further 8% of recipients used a financial windfall to pay down their mortgage obligations.

The research also shows that less than one in 10 sought professional advice, with just 4% speaking to an Independent Financial Adviser and 4% speaking to their bank. Those who did seek advice turned to their partner (31%), parents (5%) or friends (3%).

‘It is disappointing that people are seeing the real value of their savings eroded by relying on high street accounts that have offered record low returns on investments in the last two years.  Inflation is eroding the real value of monies held in many of these accounts, so people looking to invest a financial windfall should explore other investment options with the level of risk they are willing to take in mind to ensure they get the most out of their money,’ said Robin Stoakley, managing director, Schroders' UK Intermediary Business.

In the last 24 months over three million people (7%) have been gifted at least £500 by a family member.  Over 2.5 million (5%) of people have received a bonus of at least £500 from their employer, with 2.2 million receiving monies from an inheritance. The taxman has gifted over 1.1 million rebates of over £500 in the last 24 months and over a million people have received an insurance pay out.

Residents of London were amongst the greatest number of recipients to receive lump sums of money in the last two years, reflecting the so called bonus culture in the capital. Residents of Scotland were the least likely to receive any lump sums of money from the likes of competition prizes, legal pay outs and gifts.

 

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