FCA finds over 30mn struggle to keep up with bills

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FCA finds over 30mn struggle to keep up with bills
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In its latest Financial Lives survey, published today (October 21), the FCA said this was an increase of around 6m people since 2020 and accounted for around 60 per cent of all UK adults.

Of this, 7.8mn people are finding it a heavy burden to keep up with their bills, up from 5.3mn in 2020. 

Sheldon Mills, executive director, consumer and competition at the FCA, said: "If you are facing financial difficulty, you don’t need to struggle alone. There is free debt advice available, and we have told firms that they must work with their customers to solve any problems with payment.”

The City watchdog said it has responded quickly to cost of living pressures, in line with its three-year strategy which focuses on three key outcomes: reduce and prevent serious harm, set higher standards and promote competition.

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “It has been a case of out of the frying pan and into the fire for many following the pandemic. Those who manage to weather the Covid financial storm have been buffeted by price rises in seemingly every area of expenditure. 

“Now those on a financially precarious footing are facing 40 year high inflation levels – which could etch even higher once the heightened energy price cap which came into effect this month filters through.”

The survey, which was carried out between February and June 2022, found that one in four (24 per cent), or 12.9mn UK adults now have low financial resilience, up more than 2mn on 2020 (10.7mn). 

It revealed that some 4.2mn people have missed domestic bills or credit repayments in at least three of the six months before the survey took place. This is up from 3.8mn in 2020.

Jobson added: “The nation’s financial resilience is on a knife-edge. The fact that one in four UK adults are in financial difficulty or could quickly find themselves in difficulty if they suffered a financial shock is desperately worrying. 

“With wages failing to keep pace with runaway inflation and the lockdown savings well running dry for many Covid ‘accidental savers’, the number of people struggling to keep up with bills could rise even further in the coming months.”

A ‘sobering’ view

Elsewhere, it revealed that adults living in the most deprived areas of the UK are nearly seven times more likely to be in financial difficulty than those living in the least deprived areas.

More than a quarter (27 per cent) of black people said they found it a heavy burden to keep up with bills, compared with 15 per cent of all UK adults.

Around 12 per cent of people in the North East and 10 per cent in the North West are in financial difficulty, compared with 6 per cent in the South East and South West.

AJ Bell’s head of retirement policy Tom Selby, said with inflation at a 40-year high and energy costs surging, it is no surprise that millions of people are struggling to keep up with their bills. 

However, he described seeing the raw figure as “sobering”.

“Those living in the most deprived areas of the country are depressingly, but unsurprisingly, suffering badly. They are seven times more likely to be in financial strife than those in the least deprived areas of the country.

“This brutal inequality was the driving force behind the ‘levelling up’ agenda pushed so hard by former Prime Minister Boris Johnson but essentially abandoned by his successor Liz Truss.

“Sadly, things are likely to get worse before they get better, with millions of people facing rising mortgage costs each year as interest rates spiral.”

Meanwhile, Jobson explained that the government’s cost of living support measures will struggle to shield the most vulnerable members from the cost-of-living crunch. 

“The chancellor has said that ‘decisions of eye watering difficulty’ will be made to balance the nation’s books, so there is no guarantee that cost-of-living support measures will be maintained,” he said. 

“While the government has apparently committed to keeping the pensions triple lock, it has so far failed to give a similar cast-iron pledge to uprating working-age benefits, such as universal credit – meaning vulnerable families face a real term cut in benefit payments.”

He urged people to think about how the rising cost of living could impact their financial wellbeing and consider what protective steps are necessary to take now. 

Earlier this year, the FCA wrote to more than 3,500 lenders to remind them of the standards they should meet as consumers battle with the rising cost of living. 

The City watchdog emphasised that although it does not yet regulate buy now pay later products, it engaged with providers to improve customers’ terms and conditions. 

The FCA also recently warned insurers to protect their customers from unnecessary add-ons and unfair penalties, and said its upcoming consumer duty will set a higher level of standards.

Matthew Connell, policy and public affairs director at the Chartered Insurance Institute, said to help households on low earnings, it needs to build on what works.

"That includes insurers and brokers working in partnership with landlords to give those in social housing highly affordable and relevant home insurance, pricing products in a way that covers the landlords’ expenses fairly and avoiding underinsurance," he said.

“We challenge regulators, MPs, government departments and local councils to make greater take up of social housing insurance a priority, to ensure consumer outcomes are improved by some of those affected most by the cost of living crisis.

"We also challenge them to work with insurers, brokers, their trade associations and the CII to establish similar routes to market for tenants of private landlords.”

Pensions

AJ Bell’s Selby issued caution around those seeking to access their pension.

He explained that with so many people struggling to pay their bills, there will inevitably be a temptation for those aged 55 and over to raid their pension to help make ends meet.

Selby said the latest FCA data suggested the number of retirement pots accessed for the first time rose 18 per cent in 2021/22. 

The total cash withdrawn from pensions also rose 22 per cent to over £45bn.

“Anyone accessing their pension earlier than planned, or taking bigger withdrawals to cover higher living costs, needs to think carefully about the impact this will have on the sustainability of their retirement income plan,” he said.

“Taking taxable income from your pot will also trigger the ‘money purchase annual allowance’, severely restricting the amount you can contribute to your pension each year.

“While in some cases savers may feel dipping into their pension is the only option, it’s important to take the time to consider how decisions taken today will impact on your finances further down the line.”

Selby said the FCA’s data suggests four in 10 regular withdrawals in drawdown were at an annual rate of 8 per cent or more in 2021/22, down slightly from 43 per cent in the previous year.

“Whether or not this withdrawal rate is concerning will depend on the circumstances of the individual, their health, age and the investment returns they enjoy,” he said.

“For example, someone who has a guaranteed defined benefit (DB) pension that covers all their living costs might be perfectly comfortable taking large withdrawals from their Sipp.

“Equally, someone who is accessing their pension later in life – for example in their mid-70s – should be able to withdraw a higher amount sustainably than someone who starts taking an income from their 60th birthday.”

He explained that the key to making drawdown work is to carefully consider the sustainability of the withdrawal plan and being comfortable with the risks being taken.

sonia.rach@ft.com

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