There are two things you can do with money: spend or save.
Exactly how much of each we’re all doing is paramount for governments but it’s more difficult to quantify than you would envision.
For instance, the UK savings rate appears to be excessively low. Maybe it isn’t? The question is, how exactly do you account for a defined benefit pension plan?
Naturally, people spend more when they have certainty about income security in retirement but statistics struggle to account for pensions, especially when they’re underfunded.
In September, the UK is changing how it accounts for GDP and pensions will only be a small part of broader reforms. The ONS says the changes will add 2.5-5.0% to GDP, similar to the improvement when the US switched to the new GDP accounting methods last year.
The FT takes a look at how changing the numbers changes the story:
The new standards will destroy three pieces of conventional wisdom about the British economy: households do not save, companies sit on huge piles of cash and household incomes have stopped rising in line with GDP.
