Savers have poor cash buffer against unemployment

More than two in five (44 per cent) of UK employees who do not have income protection would rely on their savings if they were to become seriously ill or injured and unable to work.

These were the results of an online survey carried out among 1,004 full and part-time employees in April 2016.

However, with our respondent’s average savings of just £8,849 they would run out of funds in just four months, according to new research from Canada Life Group Insurance.

Six in 10 (61 per cent) UK workers do not have any form of protection to replace lost income if they developed a serious illness or injury, equivalent to 19.3m people.

Many overestimate the amount they would receive and could struggle to survive on a typical State benefit payment

For those without income protection, surviving off savings for as long as possible is a common strategy if they were unable to work. However, with UK households spending an average of £531.30 per week, the typical savings pot of less than £9,000 would last just 16 weeks.

Even if weekly expenditure was cut back to the bare essentials (housing, food and transport at £291.90 per week), UK employees’ savings would last barely more than half a year (30 weeks).

Yet over half of UK workers could not survive on Work-Related Employment and Support Allowance.

A similar proportion (43 per cent) of employees without income protection would apply for State benefits if they found themselves unable to work. One in ten (9 per cent) respondents do not worry about losing their income because they believe they can live off State benefits if needed.

However, many are overestimating the amount they would receive and could struggle to survive on a typical State benefit payment.

UK employees estimate the average amount provided by the Government if you’re ill or disabled and unable to work is £172 per week. A third (34 per cent) believe this amount is over £200 per week.

However, people who qualify for the Work-Related Activity (for those who could be assisted back to work) Employment and Support Allowance (ESA) group can in fact receive a maximum of £102.15 per week – £70 less than expected.

Over half (53 per cent) of UK workers could not live off this ESA payment if this was their only form of income, while 33 per cent couldn’t even if they still had their current level of savings or other household income.

In addition, 46 per cent of UK employees would not be able to meet their mortgage or rental payments if they lost their income and had to rely on ESA.

Paul Avis, marketing director of Canada Life Group, comments: “When it comes to serious illness or injury, many people assume it either won’t happen to them or they can rely on State benefits when their savings eventually run out.

“But being unable to work is more common than people think and our research underlines the fact that depending on savings or State benefits is a flawed plan for most employees.

“A savings pot will only last so long, and being accepted for State benefits is by no means a certainty.

Group Income Protection offers peace of mind that should an employee become too ill to work, their financial situation can be stabilised. In many cases, we aim to get employees back to work before they need to dip into a savings account or apply for State benefits.

“Our Early Intervention Service (EIS) boasts an 80 per cent return to work rate within the deferred period, and 90 per cent of cases do not result in a claim.

“Given the importance of this product, it makes sense for employers to offer Group Income Protection as part of their benefits package.

“No employer wants to see their staff struggle if they are unable to work due to illness or injury, and showing employees they are protected and cared for acts as an effective retention and recruitment tool. Most Group Income Protection products also come with rehabilitation services, ensuring employees get back to work as soon as possible, which is a bonus for both parties.”