Ill-health epidemic wipes out financial resilience

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Ill-health epidemic wipes out financial resilience
Pexels/Anna Shvets

Almost a third of people (31 per cent) in good health are classed as having ‘great’ levels of financial resilience, according to Hargreaves Lansdown’s Savings & Resilience Barometer.

Its data from January 2023 found this was compared to around one in 20 of those in poor health (5 per cent).

Overall, almost two thirds have enough savings (65 per cent), but this falls to around a third (34 per cent) of those in poor health.

Around a third of people have enough cash left over at the end of the month to be considered resilient (32 per cent), but this falls to less than one in 10 (8 per cent) of those in poor health.

Sarah Coles, head of personal finance at HL, said: “The ill-health epidemic has wiped out vast swathes of financial resilience. 

“Those in poor health are around half as likely to have enough savings as those in good health, less than half as likely to be on track for a moderate pension income, quarter as likely to have enough cash left over at the end of the month, and a sixth as likely to be ranked as having great levels of financial resilience overall. 

“So it’s particularly worrying that ill-health is such a growing issue.”

The barometer found that it hits long-term resilience too as almost half of those in good health (47 per cent) are on track for a moderate pension income in retirement, but fewer than one in five (18 per cent) of those in poor health are.

The rise of ill health

According to the Office for National Statistics, in the three months to January 2023, the number of people who were economically inactive because of long term sickness rose to a record high. 

The largest group of people who are too sick to work are older – 55 per cent are aged 50-64. 

However, it’s spreading across all age groups. 

In the three years to last summer, the biggest percentage increase was among those aged 25 to 34, which rose from 11 per cent of the long-term sick to 14 per cent. 

HL said part of the problem is difficulty accessing care and in the second half of January, 22 per cent of people were waiting for a hospital appointment, test or treatment through the NHS, and 31 per cent said waiting for treatment had affected their work.

This doesn’t just impact those who are sick, it also hits their loved ones, who may need to care for them. 

The ONS found that half a million more women and 200,000 more men said they were carers in 2021/22 than a year earlier – taking informal carers to 4.mn. 

Only a third of carers work full time and just half work at all, so this is likely to impact their earning potential too. It can mean both members of a couple are unable to work because of the health of one of them.

The toll on resilience

HL said long-term sickness makes it much more difficult to work, so is likely to cause long gaps in employment, or periods where people are forced to work fewer hours. 

This has a wide-ranging impact on people's financial resilience: they’re likely to have less cash at the end of the month, and may have been forced to spend their savings.

Those with poor health are more likely to need to fall back on sick pay or income protection to provide them with an income when they can’t work. 

Overall, 80 per cent of people have enough cover, compared to less than two in five (37 per cent) of those in poor health. 

HL said this is because of the fact that many of those who are in poor health cannot work – and so are less able to access this cover at all.

Helen Morrissey, head of retirement analysts at HL, said: “Long term sickness doesn’t just affect our finances today, it also severely limits our opportunities to build for the future. 

“Gaps in employment, or periods where we have to work part time, can mean people are struggling to manage day-to-day on a lower income, so it’s no wonder that their pension saving tends to suffer too.”

The firm said it's important to consider the possibility of health deteriorating, and to work out how an individual might cope financially. 

“For those in good health, it pays to bear this in mind,” Morrissey said. “There are no guarantees you will remain so well – particularly as you get older. 

“If you’re relying on working later, or funnelling more of your income into a pension as you get older, it’s important to remember that you may not be well enough to work full time at this stage. 

“There’s no need to panic, but it makes sense to revisit how much you can afford to pay into your pension, so you can build a nest egg while you’re in fine health.”

sonia.rach@ft.com

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