Households save an additional €28bn as opportunities to spend restricted

HOUSEHOLDS saved an additional €28bn last year.

This was €14bn more than in the previous year as opportunities to spend were severely limited by the lockdowns.

New figures from the Central Statistics Office (CSO) show that households went from putting 12pc of their disposable income into savings to putting 23pc of their income aside.

Higher incomes for those fortunate to be able to work from home combined with the restricted spending opportunities to send savings levels surging.

The CSO said: “The uncertainty around the trajectory of the pandemic may also have induced ‘precautionary savings’ as households kept money back, anticipating tightening finances in the future.”

Despite around a quarter of the workforce being out of work, household gross disposable income rose slightly last year.

Behind this was payments of around €6bn from the Pandemic Unemployment Payment and Temporary Wage Subsidy Scheme/Employment Wage Subsidy Scheme payments amount to €4bn.

The CSO said this was a large-scale intervention, but despite it the typical or median income of those receiving the PUP fell compared to income from working.

But this decline in income was offset by higher median incomes for those still in work.

The total wage bill in large parts of the economy, such as industry, finance, IT, and public service, rose due to higher earnings per week.

There were also more people employed in those sectors.

After taxes and social contributions are taken into account, as well as other income sources, overall total disposable income rose.

Most of the extra saving ended up in the banks and in credit unions.

Savings also went into pension funds and spare money was used to pay off mortgages and other loans.

Less than €1bn of the saving went into in new housing and home improvement works to existing homes.

There is usually a surge in spending in the run-up to Christmas, but restrictions in October and July held back some of the expenditure that economists were expecting.

Spending was up in the October to December period last year.

But after adjusting for seasonal factors, spending decreased by 3pc compared with the previous quarter.

That may have been because the restrictions in October and November were tighter than in July to September, the CSO said.

The Central Bank said this week that additional spending from built-up savings in the last year could inject €5bn into the Irish economy once the pandemic recovery gets underway.

The potential spending boost would be equivalent to adding five percentage points to aggregate consumption – similar to the estimated spending released from maturing Special Saving Incentive Accounts (SSIAs) in the mid-2000s.

However, much of the extra savings in people’s accounts is likely to go on foreign travel, imported goods and housing deposits, dampening the impact on economic growth and potentially pushing real estate prices even higher.

The top 30pc of earners have 50pc of the savings and spend more than the average on personal care, going out and culture.

This means that those sectors hardest hit by lockdowns in the past year, such as leisure and the arts, may get the biggest post-pandemic boost from the release of savings from bank accounts, the Central Bank said.

Online Editors