Households eat into savings and reduce pension contributions

Middle Britain is facing financial turmoil as households with above average incomes struggle to cope with the increasing strain on their finances, according to a new study by AXA.

The AXA study found that 72 per cent of households with a total income of £30,000 or higher will be taking steps this year to cut spending and many will be driven to radical measures as middle-class inflation, or those goods and services typically consumed by middle-income families hits 5.7 per cent.

The AXA figures, taken from a poll of almost 6,000 people, show that some 15 per cent of more affluent households have been forced to get a second job or to send a non-working member of the household out to work. And around one in five high earners will either stop saving or reduce pension contributions as concerns over the credit crunch hit home in the real economy. The most common reason for failing to save for retirement was lack of money left over at the end of the month (30 per cent) whilst 15 per cent blamed it on the burden of house prices and the same amount cited that paying debts will be the main obstacle.

AXA says such decisions highlight the extent of the difficulties facing families with higher than average incomes. The findings come as the group launches the AXA Financial Task Force, which will bring together some of the UK’s leading economists, psychologists, industry experts and public policy influencers to uncover the financial problems facing Middle Britain and what steps can be taken to solve them.

Over the next 12 months the AXA Financial Task Force will define the specific financial issues facing these families and propose ways to overcome the financial apathy that is rife within this group of people.

AXA spokesperson, Steve Folkard said: “It’s no wonder that households with above-average incomes are struggling to cope. A typical family in Middle Britain may have a higher than average income but millions are weighed down by high lifestyle costs and face tough choices as the strain on their finances takes its toll.

“One of the biggest issues however is that many seemingly well off households lack the motivation to tackle their problems. We’ve had it easy for so long and been happily spending without thinking of the consequences that now people aren’t sure what to do. The aim of the AXA Financial Task Force is to investigate the economic issues facing Middle Britain and to propose recommendations for overcoming the psychological barriers to changing behaviour.”

“If we don’t tackle this issue this group are in for a wake-up call in retirement. A significant proportion of people who enjoy high incomes may now well find that things are a lot tougher later in life. Planning for the financial future and particularly retirement is more than simply deciding what you want to do. It is also about making sure you will have enough money to accomplish these goals – unless this group takes action now they might find it will struggle to maintain its lifestyle once it’s too late.”

And AXA’s research shows how the difficult economic conditions will affect households earning over £30k a year both financially and socially. Around eight per cent of these are considering not renewing protection insurance to cut costs, meaning as many as 1.1 million households could go without life insurance or critical illness cover this year.

The AXA figures also showed that 44 per cent said they will be eating out less to cut costs, while around one in five said they would socialise less with friends (21 per cent).