Financial advisers and product providers have revealed that the are concerned about the futures of millions of Britons, following the publication of The Financial Conduct Authority (FCA) Financial Lives Survey 2017.
According to the FCA survey, more than 50% of UK adults (25.6 million) display one or more characteristics that signal their potential vulnerability – they may be at increased risk of harm, or would suffer disproportionately if harm occurred.
For all age groups the proportions showing characteristics of vulnerability are around the national average of 50%, except that for those 75 and over the proportions showing vulnerable characteristics are higher: 69% for the 75s and over, and 77% for the 85s and over.
Financial Lives is the FCA’s largest tracking survey of consumers and their use of financial services, drawing on responses from just under 13,000 UK consumers aged 18 and over. The aim of the survey is to provide the FCA with what it calls “unique insights” into people’s experiences of retail financial products and services.
The survey collected information about the financial products consumers use and their attitudes to managing their money.
It covers their experiences of using financial products and services, as well as their experiences of dealing with the firms that provide them.
Patrick Connolly, pictured left, Certified Financial Planner at UK IFA Chase de Vere, said that the survey made for “depressing reading” and that many people are not engaged with, and have limited understanding of, their personal finances.
“This is yet another wake up call that we are facing a retirement time-bomb with people living for longer and not saving enough for their financial future,” he said.
“For most people, the days when we could rely upon the government or our employers to provide us with a comfortable standard of living in retirement are long gone. We have to face the fact that we are responsible for fending for ourselves in our later years.
“Those people who aren’t saving enough for their retirement face the stark reality of either a lower standard of living in their old age or effectively working until they drop.
On pensions auto enrolment, Connolly said that while it is a positive initiative with far more people are now paying into a pension scheme, he points that most people are paying, at or near, the minimum amounts.
“This is unlikely to be sufficient to build up a pension pot which is big enough to provide them with the type of retirement they want,” he said. “There is also a big risk that auto enrolment could be giving people a false sense of security, as they’re aware they are saving into a pension but unaware of how little it might provide for them.
Andrew Bailey, pictured left, FCA chief executive, said: “The findings give us a wealth of information which will be used to increase our knowledge and understanding of the issues affecting consumers and how to best protect them. The data gathered will be invaluable in helping the FCA prioritise our work.
“We also hope that the research will provide valuable insight for other organisations focusing on consumers and finance.”
Looking at the survey results from an age group perspective, the FCA said that the data reveal some “interesting” characteristics of UK consumers:
- Single parents aged 18-34 are three times as likely to use high-cost loans.
- 17% compared to the UK average of 6%. We describe 13% of 25-34 year olds as being in difficulty, because they have missed paying domestic bills or meeting credit commitments in three or more of the last six months.
- Just 35% of those aged 45-54 have given a great deal of thought as to how they will manage in retirement.
- Those aged 65 and over are least likely to check if an Internet site is secure before giving their bank or credit card details.
The Financial Lives Survey 2017 is just one of our sources of information on potential harm, seen from the point of view of the consumer, the FCA said.
The survey results will contribute to our understanding of harm, in support of the FCA’s ‘Mission.’This publication is the second in a series of documents the FCA is publishing this autumn as part of its focus on consumers. It follows the publication of our ‘Ageing Population and Financial Services’ Occasional Paper last month. The FCA will publish an overarching strategy ‘Approach to Consumers’ later this year.
The FCA said that it will also be releasing weighted data tables with the report so that other organisations will be able to use the survey findings for research purposes.
‘Shaken, but no surprised’: 7IM
Seven Investment Management (7IM) co-founder and head of corporate development, Justin Urquhart-Stewart, said: “To the sound of creaking gates slamming shut behind me, I am shaken, but not really surprised, by the FCA’s survey findings. Here is the evidence of the woeful lack of financial education in the UK.
“We are all taught at school how to play the recorder. Why are we not taught about credit card balances, loan repayments, which bills to pay first, protecting your family and saving for your retirement?
“These are the areas that really matter and can stop people sleeping at night, not the recorder finger movements of Greensleeves. Financial education in schools and universities is crucial, but we would also like to see this done on a broader basis to employees and members of the public,” said Urquart-Stewart.
On retirement, Matthew Yeates, Quantitative Investment Manager, 7IM said: “Today’s survey findings suggest that a growing concern – how to manage in retirement – is all too easy to kick into the long grass, with only 35% of 45-54 year olds giving serious thought to the issue.
“It is understandable to put off difficult decisions, especially when there are so many competing financial priorities. But the issue of how you might live comfortably in retirement is probably the most fundamental question of all, since it will inform your investment approach.
‘Distinct lack of understanding’
Stephen Lowe, pictured below left, group communications director at Just Group, said: “The FCA’s Financial Lives report suggests that people have a distinct lack of understanding about the decisions they face when accessing their pension. Two in five (41%) of those aged 55-64 who are receiving an income or have taken a lump sum from their defined contribution pension are still employed, a further one in six (17%) are self-employed, and a quarter are unclear how they have taken money out of their pension – whether it’s through an annuity or drawdown.
“This lack of understanding should give us all cause for concern. It indicates consumers are not well-informed or confident in the decisions they make about retirement incomes, and this is likely to lead to poorer outcomes for these savers over the longer-term.
Lowe added that it is clear that there’s “some confusion” among consumers about what different products offer in the way of retirement incomes – one in ten thought income drawdown would provide a guaranteed income for life.
“There’s no doubt consumers would benefit from guidance when they access their pension pots and the need to offer consumers default guidance is becoming increasingly urgent,” he added. “By automatically enrolling savers into a free, independent guidance session we will encourage better understanding and greater engagement which should in turn lead to better decisions and outcomes for savers.”
“Astonishing financial struggles”: Old Mutual Wealth
“Steps must be taken to tackle the financial problems faced by UK adults but that will only treat the symptoms of financial difficulty and not the root cause, which can be found in our lack of financial literacy,” she said.
“Research shows that like many behaviours, our attitudes to money are shaped at a young age. The Money Advice Service has shown that many key financial habits are set by the age of seven.
“I urge the government to give serious consideration to introducing financial education onto the primary school curriculum in order to tackle the epidemic of financial illiteracy which plights families across the country*.
The report highlighted what Goodland calls a “terrifying” 4.1 million Britons that have failed to pay bills or credit commitments in three or more of the last six months, 3.5 million Brits are borrowing from friends and family to make ends meet and only just over a third (35%) of those age 45-54 having prepared for retirement.
“Much of this comes down to poor financial literacy with 46% of all UK adults saying they have limited financial knowledge, 17 million adults with car insurance saying they don’t understand the meaning of ‘no claims’ and two million UK adults say they cannot understand their annual pension statement,” she said.
“These are shocking statistics and merit serious examination from government, which should be extremely concerned about the threat to our national prosperity posed by such a staggering level of financial difficulty. The financial services sector, government and FCA all have a responsibility to address these challenges.”
She added that Old Mutual Wealth supports KickStart Money, the collaborative project that aims to take financial education to over 18,000 primary school children and support calls for financial education to become a compulsory element of the Primary National Curriculum.