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The Commission provides evidence to the Work and Pensions Select Committee

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. A large and worrying pattern of disparity in savings and outcomes is emerging, with 8.5 million people lacking any pension savings at all. 

The Work and Pensions Select Committee call for evidence on protecting pension savers touches on several barriers to saving for retirement. The Commission was delighted to be invited to offer oral evidence to the Work and Pensions Select Committee on the topic of accessing pension savings this month. Commissioner Laurie Edmans spoke on 16 June alongside other pensions policy experts, emphasising the importance of having access to pensions advice or guidance earlier in life to help people on their pensions journey. You can watch a recording of the evidence session here

Perhaps the most important issue to tackle is people’s ability to obtain guidance and advice. To overcome the disappointment many people feel when they reach retirement, they need to have a clearer picture of their retirement savings throughout their lives and the option to seek advice to make better financial judgements before it is too late. The Commission recommended better promotion of Pension Wise and an automatic enrolment into a Pension Wise interview throughout a person’s career, hopefully leading to an increase in the take-up of this vital resource. 

Beyond better, more consistent advice or guidance, the Commission has also recommended a refresh of the Pensions Commission, bringing it up-to-date and into the 2020s. The last thorough review of the system took place nearly 20 years ago, and since then the problems have changed. It is time for the solutions and thinking to change too. 

Pensions must be placed front and centre of any future strategy on financial inclusion, ensuring that retirement does not mean exclusion for millions.

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

We are recruiting

The Financial Inclusion Commission are delighted to announce we are recruiting for new Commissioners. 

You can find out more in the letter from our Chair, Chris Pond here; https://financialinclusioncommission.org.uk/wp-content/uploads/2020/12/201215-CP-Letter-FINAL-v.2.pdf

If you are interested in applying, please send an email telling us about yourself, why you are interested in joining the fight against financial exclusion and what you feel you can offer us in knowledge and experience to recruitment@ukfinclusion.org.uk.

If you want to know more, you can find our FAQs document here; https://financialinclusioncommission.org.uk/wp-content/uploads/2021/02/FIC-Recruitment-FAQs.pdf

The deadline for applications is Friday 26 February at 5pm.

It’s not just small businesses that are struggling financially, it’s the households that depend on them to put food on the table.

Says Liz Barclay Vice Chair of the Financial Inclusion Commission 

On the 26th November 2020 the Financial Inclusion Commission hosted a roundtable to discuss how to help small businesses around the UK deal with their financial woes and get recovery ready.

We also produced a discussion paper in September this year with debt charity The Money Advice Trust which runs Business Debtline, setting out what we felt were the main issues small businesses are encountering. In that we suggested:  

  1. Swift action with either insurance or assurance of help from Government to deal with the interruptions that they will see in the years to come. 
  2. Action to strengthen the Prompt Payment Code further, to introduce fines for persistent late payers, and to review the use of statutory interest on late payments. 
  3. Help to defer repayment of government-backed loans, where needed, without increasing their debt and more accessible, affordable credit. 
  4. A collaborative approach by the regulators, requiring the industry to guarantee access to and acceptance of cash, and provide the regulatory framework to enable effective collaboration as well as requiring payment providers to implement Request to Pay and auto-enrol customers. 
  5. Further support to ensure digital access and better digital banking and payments products which meet these needs, at costs affordable for small businesses.
  6. Support and training to help small businesses adapt to the increasing digitisation of the economy and assistance to train and upskill the workforce and contribute to job creation. 
  7. A fundamental review of how small businesses and the self-employed are taxed with a view to achieving a system which does not lead to significant costs for small businesses. 
  8. A sustainable long-term pension solution with ways of providing adequate advice and of engaging small businesses and the self-employed in planning their financial future.

At the ensuing roundtable on the 26th November Matt Hartley from the Money Advice Trust outlined just how tough small businesses are finding it financially. One of the most worrying points he raised is that small business owners have been trying to keep their businesses afloat using money that would normally be reserved for paying the household bills. As a result twice as many households had fallen behind with personal credit card payments or council tax as far back as May as were behind with business bills. 

He also pointed out that 72% of people surveyed earlier in the year said late payments were making financial problems caused by Covid-19 worse. 

Philip King, Interim Small Business Commissioner told the audience that getting a payment on time can mean the difference between being able to feed your family or not, and the implications for mental health of small business owners are horrendous. Philip has written a blog for the FIC which you can find here

We need our small businesses to survive and drive the recovery. They are the backbone of the UK economy with 5.9 million small businesses employing about 60% of the workforce pre-covid. They are the innovators and entrepreneurs who take risks and create jobs. 

Miles Celic is CEO of TheCityUK, set up 10 years ago to represent UK-based financial and related professional services. The organisation is working on an ecosystem recovery plan for cities across the UK. Miles is pushing for various support mechanisms for small businesses: “There’s no point in supporting them through the crisis only to pull the plug on them later on, because that’s hugely damaging to the companies, the people who work for them, the communities they support, and to the tax payer more broadly.”

Over the next year at the FIC we’ll continue to investigate the financial issues faced by small firms. 

In the meantime Money Advice Trust launched a new report on Tuesday 8th December called Back to business: Supporting people in self-employment to bounce back from Covid-19 which includes predictions from self-employed people about their longer term recovery from this crisis and that of their business. I have to declare an interest here. I have been an ambassador for the Money Advice Trust for years. It does remarkable work.

Business Debtline helps the people who sit behind those numbers – those in the hospitality industry whose jobs have disappeared, taxi drivers whose custom has dried up, bar owners who have lost all their trade overnight. If you know someone who needs their help find them online at https://www.businessdebtline.org/ or call 0800 197 6026. 

Philip King, Interim Small Business Commissioner, on the impact of late payments

Late payment is a scourge that has a disproportionate effect on small businesses and, according to the FSB, is responsible for the failure of approximately 50,000 small businesses a year. Cashflow is the lifeblood of businesses and, when it runs out, they fail. It’s as simple as that. When employees, a key supplier, or a landlord can’t be paid then the inevitable outcome is failure of the business unless alternative additional funds can be found, and quickly.

As the Small Business Commissioner, my team and I speak to countless businesses that are struggling to get paid by a larger customer. We intervene or signpost to help them resolve the situation and get the monies they’re owed. To date, we’ve directly recouped almost £7.5m, and more than £680k since we entered lockdown. We will also, unknowingly, have supported the collection of far more where our name has been used as a means of encouraging a business to pay.

But the impact of late payment is not just financial, it’s also emotional. I’ve talked to thousands of small businesses through lockdown on webinars and virtual forums and I’ve heard many harrowing stories from business owners: people who are living their passion and dream through running a business but who can be incredibly vulnerable.

As a result of worrying whether a payment is going to arrive or not, they suffer from mental health issues which can cause relationship difficulties, breakdowns, sleeplessness, mood swings and anxiety. Their employees are often personal long-standing friends and they feel a responsibility towards them. At the same time, they are worried about clothing and feeding their own families and know that they will have to make difficult decisions. They’re often caught between a rock and a hard place and frequently feel they have nowhere to turn for help or meaningful advice.

And not every small business owner is tech-savvy. The move to technological solutions is great for some of us but makes others feel excluded and even more vulnerable. That is why the work of the Financial Inclusion Commission (FIC) is so important and why the SBC is eager to collaborate with it. The SBC can help small businesses get paid, and the FIC wants to make sure that financial services are accessible to all, and that everyone has the skills and motivation needed to use them.

If, together, we can help ease the cashflow pressures for small businesses and ensure people can access the services that most of us take for granted, it will be a noble partnership. 

The Financial Inclusion Commission is delighted that Philip will be speaking at our Small Business Roundtable event on Thursday 26 November.

Stiffening the backbone of the UK economy: building back sustainable, resilient small businesses post-Covid

In September, the Financial Inclusion Commission launched a discussion paper focusing on the issues faced by small businesses, in collaboration with Business Debtline. We are delighted to be hosting a roundtable event on Thursday 26 November at 10:30 via Zoom, based on the contents of this paper, titled ‘Stiffening the backbone of the UK economy: building back sustainable, resilient small businesses post-Covid.’

Small businesses have been severely impacted by the crisis and research suggests that as of June, 80% of SME’s had seen a negative impact on their revenue from Covid-19. The coronavirus pandemic has served to accelerate the problems faced by small businesses: obtaining insurance for income continuity; accessing affordable credit; digital access; payment deferrals. We believe that intervention is needed to assist this hugely important sector of the UK economy to recover, innovate, create jobs and employment, and rebuild in a financially resilient way for the future.

We are excited to have Seema Malhotra MP, Shadow Employment Minister and a member of the Financial Inclusion Commission, chairing the event. We have some fantastic speakers lined up including;

  • Liz Barclay, Commissioner at the Financial Inclusion Commission
  • Philip King, Interim Small Business Commissioner
  • Matt Hartley, Head of Public Affairs at Money Advice Trust
  • Miles Celic, CEO at The City UK

If you are interested in attending the event please do get in touch through our email commission@UKFinclusion.org.uk

International Credit Union Day 2020

Today (15 October 2020) marks the 72nd anniversary of International Credit Union Day. 

Beginning in 1948, credit unions have come together annually on the third Thursday in October to commemorate the credit union movement’s history and achievements. 

Credit unions are not-for-profit financial cooperatives that provide an effective and viable alternative to for-profit financial institutions for more than 274 million members in 118 countries worldwide. More than 85,000 credit unions exist globally, providing a plethora of financial services for their members, recognized as a force for positive economic and social change. 

Throughout the COVID-19 crisis, credit unions around the globe have continued to provide a high level of service to their members and demonstrated a generosity to their local communities that has set them apart from other financial institutions. 

The community commitment and positive economic and social change are just some of the ways that credit unions differ from traditional for-profit banks and financial institutions. For more than 150 years, credit unions worldwide have proudly collaborated to put people before profits in order to provide access to affordable financial services for all members. Credit unions invest their earnings in helping members meet their financial goals. 

The provision of affordable credit is crucial to helping those who may otherwise struggle to obtain credit or pay this credit back, and therefore significantly contributes to a financially inclusive UK. The Commission believes that more must be done to support these vital institutions, especially as Covid-19 continues to impact those most financially vulnerable.

Covid-19 and small business: A discussion paper

Today, the Financial Inclusion Commission, in collaboration with Money Advice Trust, have launched a paper focusing on the problems faced by small businesses which have been accelerated by the coronavirus pandemic.

The coronavirus pandemic has served to accelerate the problems faced by small businesses: getting insurance for income continuity; accessing affordable credit; digital access; late payments and payment deferrals. Small businesses are operating in a more uncertain economic landscape.

Urgent intervention is needed to assist this hugely important sector of the UK economy to recover, innovate, create jobs and employment, and rebuild in a financially resilient way.

You can find the paper here.

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