FCA finds 60% of adults are struggling with cost-of-living increases

In a study, the FCA found that due to the widespread cost hikes one in four UK adults now have “low financial resilience”. These are people who are in financial difficulty, or who could quickly find themselves in difficulty if they suffer a financial shock.

This was two million people more than in 2020, 12.9 million today versus 10.7 million prior.

UK inflation hit another 40-year high this week, indicating just how much costs have risen, breaching double digits for the second time this year – 10.1% for August. Economists have forecast inflation to rise even further in the final part of the year, increasing the strain on household finances.

Industry warns uncertainty is far from over after Liz Truss’ resignation

Another key finding from the FCA was that 31.9 million people, or 60% of UK adults, were “finding it a heavy burden or somewhat of a burden to keep up with their bills”.

There was an increase of six million people since 2020, meaning more people are struggling post than during the Covid pandemic.

Within this there has been a growing number of people struggling with “financial difficulty” and unable to pay domestic bill or credit repayments. The FCA found 4.2 million people had missed one or both in the three of the past six months. Again, this was up from 2020, this time by 3.8 million people.

Tom Selby, head of retirement policy at AJ Bell, called this a “worrying figure” and said that these realities were worse for people living in the most deprived areas of the country.

He said: “They are seven times more likely to be in financial strife than those in the least deprived areas of the country.”

Selby said these figures were “no surprise” but seeing the “raw figures in black and white is sobering”.

“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,” he said.

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

FCA chief: We will continue to learn from our mistakes

Selby highlighted that this could put more pressure on people’s already strained pension pots and said there will “inevitably be a temptation for those aged 55 and over to raid their pension to help make ends meet”.

This is already becoming a reality, with the FCA finding the number of retirement pots accessed for the first time rose 18% in 2021/22, and the total cash withdrawn from pensions rose 22%.

Selby advised anyone accessing their pension earlier than planned, or taking bigger withdrawals to cover higher living costs needed 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 is important to take the time to consider how decisions taken today will impact on your finances further down the line.”