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Financial resilience in the long-term savings journey

Helping customers to build financial resilience is a key purpose of long-term savings and insurance. The last two years have brought into sharper focus the life events that so many people experience every year: redundancy, sickness, caring, bereavement, domestic abuse, divorce. At the same time, the pandemic has demonstrated the value of having assets or insurance to rely upon when experiencing these events. Yet recent ABI polling found that 1 in 5 working age adults would not have enough money to cover their bills for a month if they were no longer able to work, while a quarter would only manage financially for up to three months.

The pandemic also exposed and exacerbated inequalities in financial resilience, as spelt out in detail in the Pensions Policy Institute’s latest report on the ‘under-pensioned’. For many, lockdowns created an opportunity to save, but the extra £200 billion saved by June 2021 was distributed very unequally. Between February 2020 and June 2021, 32% of people with income in the lowest income quintile experienced a fall in savings and 12% had a rise; but 9% of people in the highest income quintile experienced a fall, while 47% had an increase in savings. Groups of the population entering the pandemic with less financial resilience were more likely to suffer financially during it: overall, people from ethnic minorities were more likely to use savings to cover housing costs; people with caring responsibilities were more likely to fall behind on bills; and women were more likely to get into debt.

But there are positives too: changes in working patterns, especially more flexible working, has the potential to benefit some ‘under-pensioned’ groups, including disabled people and carers. For those who have remained in employment, the industry has a great opportunity to help them harness their savings to build resilience for when they need it in future.

Several current policy priorities need to take these factors into account.

  • Those in work are the most able to build and rely on their financial resilience. It’s not just about income – the workplace can mean access to income protection, savings and financial wellbeing support, as well as pensions. The self-employed still save far less than employees overall. So the Pensions Minister’s plans for a ‘Automatic Enrolment 2.0’ review should take into account the broader picture of financial resilience, acknowledging that pensions and AE can’t solve everything. It goes without saying that the 2017 AE Review recommendations need to be implemented as a priority.
  • Life events happen, and people facing them deserve access to meaningful support when they most need it. MoneyHelper is delivering specialist appointments and content; and providers are increasingly focused on customer experience and sharing good practice on treatment of vulnerable customers. But if the Government and FCA were to go further in their work on the advice and guidance, providers and MoneyHelper could go further in supporting their customers in specific circumstances to make decisions at critical points in life. 
  • The FCA’s and TPR’s joint work on the pensions consumer journey could be revisited in light of our recovery from the pandemic. That project has gone a little quiet while the higher profile regulatory collaboration on value for money takes centre stage. But a cross-cutting, strategic look at how consumers experience pensions and savings through life is necessary, and this could help join the strands together.

The ABI’s Annual Conference 2022 will feature a breakout session entitled ‘Financial resilience in the long-term savings journey: what are the crunch points and how can the industry help?’

Last updated 17/12/2021