FCA finds many still struggling with cost of living – the industry reacts

by | Apr 10, 2024

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New research from the Financial Conduct Authority (FCA) has found that while many are struggling to meet financial commitments, the picture has improved over the last year.

In it’s latest ‘Financial Lives’ report update published this morning, the FCA said that the cost of living survey was conducted among 3,450 UK adults who had previously completed the FCA’s main Financial Lives survey in May 2022. The regulator found 7.4m people were struggling to pay bills and credit repayments in January 2024, down from 10.9m in January 2023. This is still higher than the 5.8m recorded in February 2020, before the cost of living squeeze began.

But the picture is not the same across the board. According to the FCA, renters, single adults with children, adults from minority ethnic backgrounds, and people living in the NE of England were “more likely to be in financial difficulty”.  

Sharing their reactions to the FCA’s latest insights, finance experts have been commenting as follows:

 
 

Andrew Tully, technical services director at Nucleus said: “The effects of the cost-of-living crisis will unfortunately be felt for years to come. The FCA findings are focused on savings and investments, but there are also affordability issues around long-term pensions preparation and retirement confidence. 

“We have very recently conducted some consumer research which has revealed that 74% of UK adults cite ‘affordability’ as one of the issues that negatively affects their retirement confidence. 

“That figure rises to 81% of those aged between 45-54. We need to work together as an industry and with the government to make it easier and more rewarding to save for later life pension provision.”

 
 

Zoe Morton, associate director at RSM UK, said: “There’s a growing number of vulnerable customers in the UK, particularly in the current cost of living crisis, making it more important than ever that firms get things right. But they face a huge challenge, as many customers may be classed as ‘vulnerable’ according to the FCA’s criteria without them even realising it, due to situations such as a bereavement or divorce for example. This can make it extremely difficult for organisations to know just how many vulnerable customers they are dealing with at any time.

“The FCA’s guidance on the fair treatment of vulnerable customers was issued over three years ago, but it appears progress among some firms has stalled. The onus is on businesses to understand the vulnerabilities that are prevalent amongst their customer base and ensure they have the necessary measures in place to protect and support consumers, from financial hardship for example. This could be through looking out for vulnerable indicators and sensitively dealing with these, along with signposting consumers to appropriate charities and organisations that can support further. The FCA continues its focus on this area, so we’re likely to see an uptick in routine visits to organisations, requesting information that demonstrates good practice and potential enforcement and financial redress to consumers for those that are not complying with the requirements.”

Alexandra Loydon, Director of Engagement and Consultancy at St. James’s Place, comments: “Today’s data from the FCA paints a stark picture, revealing the extent of the financial difficulties UK consumers continue to face amidst testing economic conditions. A vast number are struggling with everyday financial commitments, which is hardly surprising given that, according to our recent financial health research, over the past 12 months alone, UK households have suffered a 23% drop in savings, investments and physical possessions1.  Meanwhile a third (32%) of UK adults do not feel financially resilient, with more than one in five (22%) stating they wouldn’t be able to personally cover an unexpected £500 bill. This is clearly worrying not just for short term finances, but also long-term savings. 

 
 

“With conditions expected to continue to remain challenging throughout 2024, it’s important to take control of the things we can have an impact on. Steps such as putting a financial plan in place, and, depending on your situation, seeking advice whether that be from debt advice charities or a financial adviser can really help get a handle on your situation and provide peace of mind. Alongside this, smaller actions such as regularly assessing outgoings to cut costs, reviewing savings to check you’re benefitting from the best rates, and ensuring you’re utilising tax allowances and reliefs can all help you grasp your financial situation and take action to improve it, making a real difference to your financial resilience both now and in future.”

Damon Hopkins, Head of DC Workplace Savings at leading independent consultancy Broadstone, said: “Despite the easing cost of living and brightening economic outlook, millions of consumers are still struggling with serious financial pressures.

“It remains a precarious situation at a time when the health and wealth of the nation is under the microscope like never before – interest rates remain high, the NHS is on its knees, and the cost of basic living is still rising at uncomfortable levels. It’s more important than ever that organisations do everything they can to support their staff, customers and other stakeholders.

 
 

“In particular, the financial services industry has a unique opportunity to drive positive outcomes, act as a force for good and in doing so shift some of the negative perception of the industry.”

Laura Suter, director of personal finance at AJ Bell, comments: “The overall picture is improving but still incredibly tough for many households who are at the sharp end of the cost of living crisis. While fewer people are struggling to pay bills and fewer are falling behind with payments than a year earlier, there are still far more people who are struggling financially compared to before the current crisis. 

“The figures paint a truly divided picture. On the one hand huge portions of the population have blitzed through their savings and are now living month-to-month with no cushion to fall back on: the figures showed that 11% of people have no disposable income each month. But on the other hand, that means a very healthy majority of the population have money to spare each month – either to save, invest or spend on luxuries. 

 
 

“It’s the same story when it comes to people’s savings. Almost a quarter of people have used savings or investments to cover their day-to-day costs and 44% have either stopped saving or investing or reduced their amounts. But at the same time that means half those questioned are maintaining their savings levels, or may have even increased them. 

“Unsurprisingly those who are most likely to be struggling with their costs are low-income households, single parents, those who are unemployed and people who are renting. On the other side of the fence, people much less likely to be struggling are earning more than £50,000, retired and/or owning their homes outright.

“It’s easy to say, but people struggling with bills or debt should get some professional support to find out their options. Admittedly that’s a difficult thing for many people to actually do. But anyone who is worried about taking action should get comfort from the fact that people who have sought support are generally happy that they did. Nearly half of those who got help from a lender or charity said they were better off than before, with StepChange and Citizens Advice being the most popular sources of support.”

 
 

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