Royal London Financial Resilience Report launched today

• Three-quarters of people say that their retirement plans have been affected by the cost of living crisis
• Almost one in three 18-34-year-olds (31%) are overdrawn or have to borrow at the end of the month once bills have been paid
• One in five (20%) 35-49-year-olds are likely to say they are in, or near, financial crisis, despite having the highest percentage of people employed and the highest average earnings of all age groups

Royal London, the UK’s largest mutual pensions, protection and investment provider has launched its Financial Resilience Report 2024 – Weathering the cost of living crisis.

The report’s key findings show that over half of people’s financial resilience, defined as their ability to cope financially with a life shock, has been affected by the cost of living crisis.

However, it is not only people’s ability to cope with the financial impact of, for example, job loss, illness or bereavement that has been reduced by the crisis. Three quarters of adults told us that their retirement savings and plans have been affected too. For some, it could mean they retire with less, while for others it means they will have to push back retirement altogether.

Sarah Pennells, consumer finance specialist at Royal London who commissioned the report said:

'We’ve been tracking the rising cost of living for two years and it’s clear we’re now starting to see much longer-term impacts on the financial futures of UK consumers. The higher prices of essentials such as food and energy, as well as rising mortgage rates and rents, have been stretching people’s pockets on a day-to-day basis, but they have also been affecting longer-term finances and savings. As we enter a new phase of the cost of living crisis and some costs start to come down, it’s clear that some of those who have experienced the biggest rises in housing costs, whether it is those renting or homeowners with a mortgage, are in a financially vulnerable position.'

The report finds that across all age groups, rising rents, especially in the private sector, are a significant worry. In the 12 months to February 2024, housing costs in the private sector for all renters rose by an average of £324 a month, versus an increase of £148 a month in the social sector. Compared with the wider sample group, renters are less likely to feel financially secure and are more concerned about paying their energy and food bills than non-renters.

Over a third of renters (37%) are buying less food, while 46% have switched to cheaper brands. All of this is impacting their mental health, with almost half of those who rent (49%) feeling stressed and more than a third (34%) having trouble sleeping due to rising costs. People living in rented accommodation are also more likely to feel ashamed about their ability to cover their costs than homeowners, and, while only one in three have sought financial help with the cost of living, this is higher than for the sample as a whole.

Looking at 18-34-year-olds in our research, almost a third (31%) are overdrawn or have to borrow at the end of the month once bills have been paid, which is higher than most other age groups. A key aspect of financial resilience is being able to afford an unexpected expense. If someone has limited or no savings and/or no disposable income, they may feel they have no other option but to borrow if an unexpected expense arises.

When considering what 35-49-year-olds told us, they are most likely to say they are in or near financial crisis, namely, unable to pay their major bills. One in five (20%) fall into this category, compared to 13% of the sample as a whole, despite having the highest percentage of people employed and the highest average earnings of all age groups.

The report also tracks the impact of the cost of living crisis on those earning £40,000 to £80,000 a year across all age groups. In March 2023 these higher earners’ monthly outgoings had shot up by £560 per month in the previous 12 months, compared to an average increase of £441 across all income groups. That’s a difference of 27%. As a result, they were more likely to be overdrawn or to have to borrow at the end of the month (35% compared to 31% for the whole sample). They were also more likely than any other group to put more of their spending on credit cards, use bank overdrafts or take out payday loans to cover rising costs. Our latest research shows that position has not improved. Household bills have risen by £652 a month on average in the 12 months to February for this income group. Over a third (34%) of those earning £40,000 to £80,000 said they were overdrawn sometimes or always or had to borrow at the end of the month, compared to 25% of the whole sample.

Sarah Pennells continued;

'While overall, the financial position of some consumers has improved recently, there are still many people without the financial cushion needed to cope with a life shock or who face the prospect of making difficult choices about their spending in retirement, given three-quarters of people told us that their retirement plans have already been affected. The long-term impact on the income people retire on, or the age at which they retire, could therefore shift significantly.'