The power of being well informed: protecting against income shocks

The world is changing at a faster rate than ever before – across technology, the environment and politics.  Against this background of unparalleled change, we believe that everyone deserves to Live Confident, but a lack of financial resilience is undermining this confidence.

No-one wants to think about facing an income shock yet we are all likely to face periods of financial difficulty during the course of our lives.  And while some people are able to recover relatively quickly, others are ill-prepared and struggle to bounce back or cope.

This forms the theme for an Association of British Insurers (ABI) event this week - “The power of being well informed: protecting against income shocks” - where I will be sharing the findings from our latest Income Roulette Report.

In this report, we investigate the UK’s financial resilience and people’s ability, both financial and emotional, to withstand a financial shock or change in circumstances.

Our research found that financial resilience across UK households is woefully inadequate with less than half of those we surveyed (44%) having more than three months’ outgoings in savings - the definition of financial resilience used by the Money Helper. We delved deeper into three particular groups the Peter Pans (30-35 years olds), the Sandwich Generation (in their 40s and 50s with both children and older dependants and those Approaching Retirement (mid 50s+)
What struck me were:

• Similarities in attitudes and opinions that span across the generations – a worrying lack of confidence in financial matters and latent need for advice
• Differences in resilience levels – 70% of Peter Pans don’t have three months’ of outgoings in savings, while 70% of those approaching retirement do. 

For many people their ability to earn is their most important financial asset, and accessible advice and an income protection product can play a vital roles in safeguarding this.

I believe that there are other practical steps that can be taken to help people protect themselves and their loved ones against the financial and emotional effects of unexpected life shocks

1. I would like to see the development of more self-help tools for advisers and consumers.  At LV= we have created a Risk Reality Calculator which shows your individual likelihood of suffering different income shocks and we are also very supportive of the ABI’s new Protection Calculator.
2. I believe that the Single Financial Guidance Body can play an important role in promoting financial resilience and would like to see it focus more on ‘mass middle Britain’, everyday working families.
3. I would also like to see incentives such as a regulated ‘advice voucher’ to make affordable independent financial advice more widely accessible.

There is an important role for Government, the wider industry, providers and financial advisers to improve consumers’ understanding of the importance and relevance of financial planning, and what steps they can take to improve their financial resilience

Justin Harper
Head of Marketing, LV=