Financial Conduct Authority: cost of living crisis hits savings and investments of 28m people

Millions of people have stopped or cut back on savings and investments due to the cost of living crisis, new polling by the Financial Conduct Authority (FCA) has suggested.

According to the regulator’s annual Financial Lives survey, 27.6 million people have either halted both activities or reduced the amounts they set aside for them. This figure also includes people who have accessed their savings or investments to ensure they can keep up with their day-to-day costs.

The FCA found that there had been an improvement year-on-year in terms of how many people were struggling to keep up with the cost of living. But it also said the numbers remained “worse” than they were before the Covid pandemic hit.

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It comes as a series of indicators have suggested the cost of living crisis is easing slightly for most consumers. Headline inflation dropped to 3.4% in February, with wages outpacing the rate of price rises. Mortgage rates are steadily falling ahead of potential interest rate cuts later in 2024.

But recent research by the Financial Ombudsman Service also implied households are still struggling to make ends meet. It said it expects to see a surge in cost of living-related complaints over the next 12 months.

Cost of living crisis still hitting savings and investments

The FCA’s Financial Lives cost of living survey was conducted between December 2023 and January 2024, with three-quarters of responses recorded after the beginning of the new year.

Of the 3,450 UK adults polled by the regulator, 44% had stopped or reduced saving or investing activities over the previous 12 months. This marked a slight uptick on 2023’s data, when 40% of people said they had done so.

A further 23% had used their savings or investments to remain afloat amid soaring everyday costs, a nine-percentage point fall year-on-year. However, among those who said they were not coping financially, this figure leapt to 40%.

Combined, the FCA said these statistics suggested 53% of the population (27.6 million people) had taken at least one of the three steps. This figure was a slight improvement on January 2023’s data, which showed 56% people had made the changes.

The 2024 survey results contained better news for pensions, with the regulator finding that just 3% of respondents had stopped or reduced the amount they contribute towards their pots. Another 2% of the poll’s participants had cashed in on their pension, or taken out a lump sum, in a bid to cover the cost of living - a one-percentage-point fall against 2023.

Again, the figures were higher for those who said they were not coping with the cost of living crisis. From this cohort of people, 7% had stopped contributing - or reduced how much they contributed - to their pensions.

Commenting on the research, the director of personal finance at AJ Bell, Laura Suter, said the latest data painted a “truly divided picture” of the UK’s cost of living crisis.

“On the one hand, huge portions of the population have blitzed through their savings and are now living month-to-month with no cushion to fall back on [the figures showed that 11% of people have no disposable income each month]," she says.

"But on the other hand, that means a very healthy majority of the population have money to spare each month – either to save, invest or spend on luxuries.

“It’s the same story when it comes to people’s savings. Almost a quarter of people have used savings or investments to cover their day-to-day costs and 44% have either stopped saving or investing or reduced their amounts. But at the same time that means half those questioned are maintaining their savings levels, or may have even increased them.

“Unsurprisingly those who are most likely to be struggling with their costs are low-income households, single parents, those who are unemployed and people who are renting. On the other side of the fence, people much less likely to be struggling are earning more than £50,000, retired and/or owning their homes outright.”

More mortgage holders feeling interest rates squeeze

The FCA’s findings also suggested record high interest rates are continuing to work their way through the housing market. The Bank of England’s base rate currently sits at a 16-year-high of 5.25%, but many mortgage holders have so far avoided higher rates due to the popularity of fixed-rate products.

In the year to January 2024, 36% of mortgage payers had seen their monthly payments rise - an increase from the 29% recorded in the previous year’s survey. Just over 5% of those polled had fallen behind on - or missed paying - a utility bill or credit commitment, such as a credit card bill.

However, the proportion of homeowners who missed a mortgage payment remained low at just 1.7% (it was 1.1% in 2023). A further 1.6% of mortgage holders who were struggling with the cost of living had either requested a mortgage holiday, or that their provider reduce their repayments. In 2023, the figure was 0.4%. The number of respondents who expected to ask for help from their provider over the next year was 2% - a similar figure to the previous year.

For renters, 7.2% (roughly 1.1 million people) had missed - or fallen behind on - rental payments over the 12 months to January, a slight fall on the previous year. But almost a fifth (19%) had fallen behind on their utility bills. The FCA said it showed tenants “typically prioritise” their rent over most other bills.

Utility bills increased again for most people at the start of April - although energy bills have dropped 12% and look set to fall again this summer.

FCA finds ‘improvement’ in cost of living impact

Overall, the FCA found there had been a significant fall in the number of people who were not coping financially, or were finding it difficult to cope. Its survey found that 28% of those surveyed considered themselves to be in this bracket in 2024 - an eight-percentage point drop year-on-year.

But once again, there was a split when it came down to factors like household income and employment status. For example, 60% of those living in a household earning less than £15,000 a year said they were struggling compared to 16% whose household’s combined pay came in at £50,000 or more. More than half (55%) of unemployed people were in dire financial straits, while 27% of the employed and 13% of the retired found themselves in this position.

FCA executive director of consumers and competition, Sheldon Mills, urged anyone who is struggling to “reach out” to their lenders “straight away”. He also pointed to publicly-owned debt advice service MoneyHelper. 

The regulator added that it has been reminding financial firms and lenders of their duty to support their customers and work alongside them to manage difficulties with payments.