The number of consumers with low financial resilience has soared from 10.7m to 14.2m during 2020 as the pandemic took its toll on UK households, a bleak report from the FCA has shown.
FCA poll data taken in October found 30 per cent of adults, 15.9m people, said they expect their household income to fall during the next six months, while 25 per cent, 13.2m, expected to struggle to make ends meet.
To cope with the hardships they expected to face, 33 per cent of adults reported that they were likely to cut back on essentials, while 11 per cent said they would use a food bank. The poll found 8.1m people – 16 per cent of adults – expected to take on more debt. However, 48 per cent of adults have not been affected financially by Covid-19, and 14 per cent have actually seen an improvement in their financial situation.
The FCA defines low financial resilience as those with over-indebtedness or with low levels of savings or low or erratic earnings
There are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. Having one of these characteristics means that these consumers are at greater risk of harm. This figure is up 15 per cent since the FCA completed its FLS in February, when 24.0 million displayed characteristics of vulnerability.
The FCA surveyed more than 16,000 people between August 2019 and February 2020. This was followed by a subsequent survey, with over 22,000 respondents, focused on the impact of the pandemic on consumers, conducted in October.
FCA director of consumer and retail policy Nisha Arora says: “The Financial Lives survey is fundamental to the work we do as a regulator, enabling us to hear directly from consumers across the UK.
“While there are some positives in the data, many of the findings are worrying. Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown. The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.
“Vulnerability remains a key focus for the FCA, and has been brought into sharp relief by the pandemic. We continue to work with the wider financial services sector, including businesses, regulators and government to support and protect consumers. We expect to finalise our guidance on how firms should treat vulnerable customers shortly.”
Aegon head of pensions Kate Smith says: “The pandemic has led to a worrying divide between the financial ‘have’ and ‘have not’s’ in people’s ability to manage their finances and this is set to get worse. Today’s figure show over the last year an extra 3.5 million have been added to number of adults catergorised as having low financial resilience, which now totals a quarter of UK adults. While some have been able to save more as expenditure has reduced, many others have seen extreme strains on their finances and their ability to save.
“The figures show the self-employed have been hit the hardest since the start of the pandemic in terms of household income, with six in ten seeing their income fall from March to October 2020**. This is particularly concerning for the long-term financial resilience of this large part of the workforce as the self-employed already face challengescompared to employees when it comes to their pension savings, as they do not benefit from being automatically enrolled into a workplace pension and receive the valuable employer contributions which come with this.
“The government has provided an unprecedented level of support for businesses and workers but concerns remain over the long-term impact of the pandemic on the nation’s financial resilience, particularly for those who have lost their jobs or seen incomes reduce, this is likely to mask the true impact on people’s financial vulnerability. As we emerge from the worst of the health crisis it will be crucial that we do not forget the importance of financial wellbeing which could have lasting consequences on people’s financial futures.”