Your IndustryMay 28 2020

Surviving the Covid-19 fallout

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Surviving the Covid-19 fallout

As we start to see a loosening of the lockdown, it is crucial that we also review what other rules and regulations could also be enhanced as we enter the ‘new normal’.

Our attention is turning away from the direct health crisis to the significant economic impact of the global pandemic.

It is becoming uncomfortably clear that while not everyone has been physically affected by the virus, every single one of us will be impacted financially. During the pandemic, savings and investments have been volatile, as have wages and jobs.

It is disheartening to see your balance sheets tumbling

We have already seen personal financial losses and disruptions, but sadly this will worsen as we begin to navigate the immediate aftermath of Covid-19.

Data from the latest Moneyfacts UK Personal Pension Trends Treasury Report showed that the impact of the coronavirus pandemic on global stock markets had caused the value of the average pension fund to plummet by 15.2 per cent in Q1 2020.

While for younger savers the power of time will hopefully turn the pandemic into a mere blip on their statements, those nearing retirement cannot afford to sit back and wait for their pension pots to recover as they see their retirement income fall.

Key Points

  • Attention is turning to the economic consequences of Covid-19
  • People must be more financially resilient
  • There needs to be greater financial guidance

The introduction of auto-enrolment has brought nearly 10.5m people into pension saving, many of these for the very first time. This might well be the first real economic downturn they have faced.

It is disheartening, if not downright scary, to see your balance sheets tumbling. If you are not financially well versed, the cyclical nature of the economy is not at the forefront of your mind, which is when rash decisions are more likely to be made.  

Despite this increase in the number of savers, 92 per cent of the UK adult population does not receive financial advice. Last year, just 4m people received advice, and only half of these benefited from it on a regular basis.

Thankfully, the current crisis could reignite a savings culture in the UK.

Since World War II, savings have fallen consistently, but this sharp, painful reality check may provide the catalyst for consumers to truly understand the importance of having a cash buffer for unforeseen circumstances.

Furthermore, the lockdown has resulted in a reduction in spending that may prompt some households to keep consumption at a lower level, with increased saving.

But growing cash reserves, increased savings and investments carry more product options and vulnerability to risks. The financial services industry needs to adapt to this new world and the return to a more valued savings culture.

A call for guidance

First and foremost, we need to make financial guidance more accessible and loosen the rules around personalisation, especially for those who try their best to save but deem advice expensive compared with the size of their savings.

As more people save through AE and other schemes, we will find that those who need enhanced guidance will be a growing demographic.

A solution for this unserved group faces several challenges, which are collectively delaying support for the people who most need help.

Tisa has been working closely with its member companies to proactively find solutions and raise this to the attention of the Financial Conduct Authority, HM Treasury, the Department for Work and Pensions and the Money and Pensions Service.

Perhaps the current crisis will accelerate the desire to find a solution, as the UK mucks together in boosting economic resilience.

At the end of the day, the more financially independent and resilient each individual is, the stronger the economy.

While the ideal situation would be for everyone to receive advice, a way to deliver this at a low cost and with the ability to adapt to customer complexity has yet to be found. That is where the benefits of more personalised financial guidance need to be acknowledged. 

It does not take a financial services professional to know that the current definition of ‘financial guidance’ is vague. So vague that, when Tisa asked five leading companies to review a set of 20 examples of customer support to ask if they represented guidance or advice, we received five very different answers because of the ambiguity of the rules. 

We need an enforced, unified approach to ensure clarity and consistency and greater personalisation to make guidance more effective.

The main case against loosening rules around guidance is trust. It is argued that financial services could use guidance as a means to flog inappropriate products – but there are ways of tackling this with appropriate regulations, qualifications and accreditations.

Furthermore, by limiting who can offer guidance services to regulated financial services companies and Maps, appropriate controls can be put in place.

Additional flexibility 

Tisa is extremely supportive of the action that has already been taken by the FCA during this pandemic: to permit additional flexibility on the scope of financial guidance support for customers.

This came shortly after the announcement of the FCA Business Plan 2020-21, which includes a focus on better consumer outcomes. This will allow companies to provide more constructive support to the non-advised market, covering investments and pensions. 

For now, we must remember that this is only the beginning. The true extent of the economic downturn that will follow Covid-19 is yet to be realised.

While it is crude to talk about ‘positives’ from the pandemic while we are still firmly in its grip, I do hope that the importance of savings and good money management will be put back into the heart of British households.

Charles McCready is strategic policy director at Tisa