Making financial inclusion a top political priority in the UK

THE FACTS

Financial exclusion remains a significant challenge for 21st century Britain which prides itself on being a global leader in financial services. 

28%

of adults or 14 million people have experienced a direct negative effect on their income due to the coronavirus pandemic (as of May 2020)

12.5 million

UK adults have little or no confidence in their ability to manage money

22%

of all adults in the UK have less than £100 in savings

1 in 5

adults would not be able to cover more than one month of living expenses if they lost their source of income

1 million

people in the UK do not have a bank account

16%

are borrowing to pay for essentials because they have run out of money

WHO WE ARE

We are an independent body of experts from financial services, businesses, the charity sector, academia and parliamentarians from all major parties.

We want a financially inclusive UK where financial services are accessible, easy to use and meet people’s needs over their lifetime, and where everyone has the skills and motivation to use them.

We provide leadership to improve the state of the nation’s financial wellbeing, championing financial inclusion as a public policy priority for public bodies, businesses, and civil society and challenge exclusion wherever it occurs.

We convene, understand and influence through assembling a coalition for change, gathering evidence, and creating and championing practical policies to achieve change.

About us

OUR LATEST STRATEGY, RESEARCH & CONSULTATION RESPONSES

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LATEST NEWS

UK FinTech Week 2021

During a year when everything moved online, FinTech has come to the forefront of many aspects of financial services. From banking apps to contactless payments, it’s clear that the Covid-19 pandemic has accelerated the adoption of digital tools. UK FinTech week is an opportunity to reflect on the role FinTech plays in everyday life, as well as the possibilities it presents for financial inclusion.

At the Commission, we recognise that FinTech can help in solving many of the challenges that lead to people being excluded from financial products and services. Too often, traditional products and services have little flexibility and are not serving the needs of consumers. More tailored products can lead to a greater number of people being able to manage their money in a way that works for them.

We were pleased to see financial inclusion given prominence in the recommendations of the Kalifa Review of FinTech earlier this year. In particular, the incorporation of financial inclusion in future regulatory design and strategic thinking will be vital to ensuring that no vulnerable consumers are forgotten as the financial services landscape changes. While barriers remain which fall beyond the scope of the review, it is encouraging that the sector will not move forward without consideration of its power to include more people financially. 

However, while the exciting developments in FinTech often present opportunities, there are still challenges to overcome. Digital and financial exclusion often overlap, creating a danger that people will be left behind financially if they face difficulties getting online. The pandemic has thrown into sharp focus the inequalities many households face when it comes to accessing the internet. Despite common narratives that young people are digital natives, CapGemini found that 43 per cent of the offline population globally are below the age of 35. The high cost of devices and internet access can prove a barrier to many on low incomes, while complexity and lack of skills can hold others back from transitioning online. Equally, we must not forget the number of small businesses owners who are not ‘digital by default’. Many small businesses, and particularly micro businesses, still need support to adopt new methods of payment and understand the online tools available to help them run their businesses so that they are able to thrive. 

Investment in digital skills and infrastructure must therefore be a high priority as the UK FinTech sector continues to boom. As we move, increasingly, towards digital solutions, there is a need to upskill the population to make sure that no one is left behind. Greater education in tech and digital will also pave the way for sustainable job growth in emerging sectors. FinTech leaders can contribute not only to the UK’s global pre-eminence in the sector, but also to employment as the country emerges from the economic impacts of the pandemic. 

The next year will be a crucial one for the UK’s recovery. We hope that FinTech can remain a key part of that recovery and move us closer to a country where everyone is financially included.

UK FinTech Week runs from 19 – 23 April and is run by Innovate Finance. You can find more details about their events at innovatefinance.com/ukfintechweek/

Amendments to the Financial Services Bill

This week marked the start of the Committee Stage of the Financial Services Bill in the House of Lords. Committee stage is the first stage in the legislative process where amendments (or changes) can be suggested to the Bill. 

We support the amendments proposed by Lord Holmes which are integral for improving financial inclusion in the UK through protecting SMEs, reviewing financial service regulation and adding a financial inclusion objective to the remit of the Financial Conduct Authority (FCA). You can find full details of these amendments here

In particular, we support the third amendment to add a Financial Inclusion Objective to the Remit of the Financial Conduct Authority (FCA). The Commission recently submitted a joint response, along with Fair By Design, to the Financial Services Future Regulatory Framework Review which included a recommendation that the FCA should be required to have a cross-cutting statutory duty to promote financial inclusion as a core objective. You can find our full response here.

Currently the FCA has no clear statutory requirement to address financial inclusion issues at all. It also does not routinely have regard to issues of financial inclusion across all of its work, wherever it is appropriate. By their very nature essential services, such as credit, payment systems and insurance are needed by everyone. However, currently poorer people pay more for products and services than those better off and products and services often do not meet people’s needs. Some people are excluded altogether. This is the justification for having a social objective like financial inclusion.

With our proposed new objective, the FCA will have responsibility for addressing the ways that markets often exclude those that are most vulnerable or disadvantaged. 

This amendment will not only help achieve this, but also give the FCA the responsibility to require firms to report on their use of financial technology (FinTech) in the pursuit of this objective. 

Pensions – the Cinderella of financial inclusion policy

Pensions can help prevent financial exclusion and hardship in later life, but they are arguably the Cinderella of financial inclusion policy. The recent Pension Schemes Bill, for example, contained nothing about financial inclusion. The Financial Inclusion Commission believes that pensions must be pushed up the financial inclusion agenda as a priority. 

The UK is generally poorly prepared for retirement and the picture has changed little over the past decade. This is not surprising when even answering a simple question like ‘How much will I have to live on when I retire?’ is a complex task; we may shy away from planning for a day we don’t want to think about; and pensions policy seems in constant flux, given us another excuse to put off thinking about it. But the consequences of not thinking about it are significant in terms of financial inclusion in later life, especially if we assume that the state pension will be enough to meet our needs. 

State provision

Throughout our working lives we contribute to the state pension system through National Insurance Contributions. For that reason, people may assume the state pension is generous. It can be shocking to discover, usually too late, that it is relatively modest compared to earnings – and it is taxable. In 2020/21, the full level of the new state pension is £175.20 a week (£9,110.40 a year). 

Some claimants are entitled to top ups through Pension Credit and help with rent and council tax. Others may have to work longer than their state pension age to make ends meet. Reliance on the state pension alone leaves many people excluded from the financial products and services they would like to access as well as the lifestyle they may have hoped to enjoy in retirement. 

The good news is that since the advent of automatic enrolment in workplace pensions in the UK, most people who are employed should have access to a pension scheme arranged for them by their employer. By 2019, around 10 million workers had been automatically enrolled – although the questions remain whether they are saving enough for a more comfortable retirement; and what any pension savings might mean for their access to benefits in later life. Of perhaps more concern, however, are the people who are not benefitting from workplace pensions at all.

Who’s missing out?

Many of those missing out on automatic enrolment have lower incomes, rent their homes, and will have little in the way of savings or other assets to draw on in retirement.

We estimate that around 8.5 million workers are excluded from automatic enrolment because they work in the gig economy or part time and earn too little; or are self-employed or work in small firms where they are the only director and there are no other employees.  

In addition, employees who are eligible for automatic enrolment may not engage because they don’t trust pensions or their employers; don’t feel they can afford to make contributions out of their income; or don’t plan for anything beyond the day-to-day. These employees could stand to benefit most from additional pension provision. 

Women, for example, are more likely to be employed in lower paid sectors such as the care sector. Even if they are contributing to a workplace pension, the amounts accumulated tend to be low. This helps explain the UK’s big gender gap in pensions: in European OECD countries, pension payments to women aged 65+ are 25% lower on average than for men; in the UK they are 35% lower

People from different ethnic backgrounds are also likely to be in poorer paid jobs and therefore accumulating less for their retirement. The average pensioner from an ethnic minority is £3,350 a year worse off than other pensioners, representing a 24.4% gap in retirement income. Relatively poor pension provision for self-employed and gig economy workers is a contributory factor because some ethnicities are disproportionately represented in these groups.

Financial exclusion and hardship in retirement may be further exacerbated if people who rely on the state pension don’t know they could be entitled to additional top-ups, don’t know who to ask, or are too proud to ask. 

Getting pensions on the financial inclusion agenda

To date, pensions have largely been absent from the financial inclusion debate – even though they are a major factor in ensuring people are financially and socially included in retirement. As part of its vision for a financially inclusive UK, the Financial Inclusion Commission is campaigning to change this so that:

  • every adult has access to objective, affordable and understandable advice on credit, debt, savings and pensions, delivered via the channel most suited to them;
  • the overall level of pensions provision – state plus private – in the UK, does not lag behind other developed countries, especially for the low paid; and
  • every adult will have a clear picture of what their income in retirement is likely to be, so they can plan and get ‘no surprises’. 

We are welcoming feedback on how these issues impact you or your organisations, and how this ties into your work. You can get in touch at Commission@ukfinclusion.org.uk

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