As our latest cost of living report highlights, the cost-of-living crisis has caused a great deal of anxiety and worry for consumers. But what does this mean for advisers? How can advisers help individual clients or employees of workplace schemes?
Individual clients who are still working
The cost-of-living crisis is clearly having an impact on those on the lowest incomes most. But there is still an impact for those with higher incomes. 80% of those with household income over £150,000 are still worried about food increases. 91% of those with income between £90,000 and £99,999 are worried. Concern about energy bills shows a similar trend with 83% of those with income over £150,000 worried and 93% of those with household income between £90,000 and £99,999 worried.
Another concerning trend was the amount of people who are taking on, or thinking of taking on, additional jobs. For those with personal income over £80,000, 36% had already taken on an additional job. Another 25% hadn’t taken on an additional job but would if costs continued to increase. So, what are the implications for these clients? Many people spend to their earnings. Will increased costs reduce the amount available for investment? What impact will this have on retirement planning?
Our research shows that 22% of retired people will use some or all of their short-term savings to pay for increased costs but 11% will use some or all of their long-term savings like investments or pensions to help pay for it. If all short term savings are used up, then pensions might be the only asset left to use. If pensions are accessed, perhaps by increasing the amount of drawdown income being taken, that could impact the amount of money available later in retirement. Plans made at the start of retirement may need to be changed.
If you’re an adviser in the workplace space then you might think that more employees might have paused or stopped contributions. However, the positive news from the research is that only 5% of people have stopped or reduced their pension contributions. And that could be a necessary last resort. If you regularly carry out employee seminars then you might find that questions are asked about this. If the employer you work with doesn’t currently offer salary exchange then could this be done? It won’t help those on the very lowest of incomes but for others it will mean a reduction in national insurance for the employee. Could the employer also pass on some or all their national insurance saving? Could that help someone who needs to increase take home pay?
We also asked the question about whether people had checked the impact that stopping or pausing pension contributions would have. 37% had checked, 53% hadn’t checked and 10% were unsure. When we asked what would make people restart their contributions more than a quarter (26%) said that information on the effect that reducing your pension would have on the money in retirement would make them restart their contributions. 14% said a reminder from their employer would help and 12% said a reminder from their pension provider. 20% said that the ability to make one off payments easily would help them restart contributions. When the crisis begins to ease then it might be appropriate for advisers to have conversations with employers about encouraging employees to start making contributions again before any additional income is absorbed into other non-essential spending. This might work around the time of a pay increase.
The cost of living crisis has impacted us all with few exceptions. The report explains in more detail the impact on consumers in general and there are more really interesting statistics on anxiety and the impact on women in particular. The cutbacks people have already made, the cutbacks that they think worked the best and much more.