The FCA’s latest Financial Lives Survey data has revealed that almost a quarter (23%) of people have used savings or investments to cover their daily costs.
The survey, published today (10 April) also showed that 44% have either stopped saving or investing, or have reduced the amount they put away.
Over three quarters (77%) of people surveyed said they’ve been spending less or working more, while 11% of people have no disposable income each month.
However, in better news, only 3% have stopped or reduced contributions to their pension, with only 2% opting to either cash-in their pension in full or take out a lump sum to cover daily expenses.
AJ Bell director of personal finance Laura Suter said that while the overall picture is improving, it is “still incredibly tough for many households who are at the sharp end of the cost of living crisis”.
“While fewer people are struggling to pay bills and fewer are falling behind with payments than a year earlier, there are still far more people who are struggling financially compared to before the current crisis,” she said.
“The figures paint a truly divided picture. 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.
“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
“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.
“It’s easy to say, but people struggling with bills or debt should get some professional support to find out their options. Admittedly, that’s a difficult thing for many people to actually do.
“But anyone who is worried about taking action should get comfort from the fact that people who have sought support are generally happy that they did. Nearly half of those who got help from a lender or charity said they were better off than before, with StepChange and Citizens Advice being the most popular sources of support.”
AJ Bell director of public policy Tom Selby added: “In the face of such a brutal cost-of-living crisis, it is encouraging the vast majority have chosen to keep saving for retirement, with tax relief, tax-free investment growth and the potential for employer contributions all helping encourage people to stick with pension saving.
“Having seemingly passed this huge test, the next big challenge for the government’s flagship automatic enrolment reforms will be scaling up contributions in a way that doesn’t result in a surge in opt-outs.
“The FCA’s survey findings are also encouraging for people at the other end of their retirement saving journey, with just 2% either cashing in their pension fully or taking out a lump sum to cover day-to-day expenses.
“While raiding your pension early might be tempting as living costs rise, taking out too much, too soon from your pot could risk you running out of money in later life and land you with a fat income tax bill to boot. The key when accessing your pension is to get a plan in place first, ideally with the help of a regulated financial adviser.
Quilter financial planner Jordan Clark said: “While we’re seeing signs of improvement, with a notable decrease in the number of people struggling to make ends meet, there’s still a significant journey ahead.
“Over seven million Britons continue to grapple with bills and repayments, down from nearly 11 million last year, but still above pre-crisis figures.
“More than five million have missed payments recently, though that’s an improvement from the previous year. And while 2.7 million sought help and nearly half found relief, too many are still hesitant to speak up about their financial woes.
“It’s clear that renters, single parents, minority communities and those in the north-east are disproportionately affected.
“And despite a three-percentage point uptick in disposable income, one in nine still have none. Women are feeling the pinch more than men, with 30% struggling financially.”
Clark added: “So, what should you do? Don’t stick your head in the sand. Firms have a duty to assist and there’s help out there. Work out what you can pay back, talk to your lenders and explore payment options.
“The FCA’s new Consumer Duty is all about ensuring firms act in your best interest, so make sure you hold them to that promise.”
Andrew Tully, technical services director at Nucleus, said: “The effects of the cost-of-living crisis will unfortunately be felt for years to come.
“The FCA findings are focused on savings and investments, but there are also affordability issues around long-term pensions preparation and retirement confidence.
“We have very recently conducted some consumer research which has revealed that 74% of UK adults cite ‘affordability’ as one of the issues that negatively affects their retirement confidence.
“That figure rises to 81% of those aged between 45-54. We need to work together as an industry and with the government to make it easier and more rewarding to save for later life pension provision.”