Data shows over 50s will be hit hard by the cost-of-living crisis and the financial impact of the Covid pandemic.

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Press Release (August 2nd 2022)

A report by the Smart Data Foundry Data Science team and researchers from the University of Edinburgh has revealed that the over-50s, especially those aged 50-54, are being hit particularly hard financially and could face a lifetime of financial insecurity. Economic inactivity rates have risen by a third amongst the over 50s since 2019, and people aged 50-54 face double the financial vulnerability risk of those aged 70-74. New research from the University of Edinburgh’s Smart Data Foundry, supported and funded by abrdn Financial Fairness Trust, is calling on the UK Government to act now to stop the emerging crisis with several key recommendations.

Adding to the concerning outlook, many people in their 50s are substantially at risk of financial vulnerability, with many drawing down lump sums from their pension pots, making them even more vulnerable in older age.

Older workers in their 50s and 60s are at risk due to a ‘perfect storm’ of circumstances; income drops from loss of employment, ill health or caring commitments for loved ones, and a lack of savings and pension provisions. Many withdraw lump sums from their pension pots to deal with these pre-retirement income shocks. But the data found that those who do this are up to 1.75 times more at risk of financial vulnerability. Worryingly, most pension pots worth under £30,000 are fully withdrawn in cash. This can cause knock-on issues with income tax and entitlement to benefits [1]. To reduce the risk of pension assets being spent before retirement, the authors call on the DWP to significantly increase the current capital limit of £16,000 for means tested benefits. For those on Universal Credit, the report calls for the reform of the Support for Mortgage Relief (SMI) loan facility by removing the zero earnings rule. [2]

[1] Source Retirement income market data 2020/21 | FCA

[2] Zero Earnings Rule – Any earned income during the wait period or receipt of SMI loan payments will mean the claimant will not receive loan payments. The zero earnings rule requires claimants to satisfy a waiting period of nine consecutive Universal Credit assessment periods with no earned income before the claimants can receive loan payments.

The research study also uncovered a widespread lack of understanding about the benefit system, confusion about claims processes, and hardship arising from payment frequency. Benefit means-testing causes both short-term and long-term hardship. To improve the transition to retirement, the report calls for increased government investment in the Pension Wise guidance service and expansion to include the state pension.

Economic inactivity amongst the over 50s has risen by a third since 2019. Older workers are encountering barriers to returning to work, including lack of digital skills, unavailability of flexible working, lack of specific government initiatives, ageism, psychological barriers, and retraining needs. The longer the unemployed worker remains out of work, the harder it is for them to find a suitable position and the greater their risk of falling into forced retirement. The report calls for a government-funded employment programme targeted at those who need support in changing careers, starting from the first day of unemployment for the over 55s.

This level of insight has been made possible due to the unique data asset Smart Data Foundry is creating by partnering with UK financial institutions to share data safely and securely.

Chair of Smart Data Foundry, Dame Julia Unwin, said:

We are seeing a pattern of people in their early to mid-fifties going from being in positions of comfortable, middle-aged breadwinners eyeing their future retirement over the horizon, to a generation suddenly finding themselves facing long-term financial hardship.

“A combination of being unable to secure viable work confused messaging over pensions, little by way of state aid, and the savage cost-of-living rises we are seeing means many are making decisions that could have long-term consequences for them."

“With this report and our key recommendations, we urgently call for the UK Government to intervene to protect and support the most vulnerable before it is too late. If they don’t act now, we will undoubtedly see even bigger problems in the years ahead. Data doesn’t lie; the evidence is there. Older workers are at very real risk of financial vulnerability, but it is not yet too late to act.”

Lead researcher Dr Lynne Robertson-Rose added: “We set out to understand the financial vulnerability amongst those in their 50s and 60s and have been surprised by the bleak picture that the data paints. Any disruption in earning capability in the decade before the state pension is forcing older workers to draw down on savings earmarked for retirement with little ability to top up the pot, leading to the risk of financial vulnerability becoming lifelong.

“The richness of the data means we have been able to make policy recommendations and identify opportunities for innovation in the financial services and fintech sector to help individuals better manage their finances.”

Making decisions about your pension is tricky to navigate, and for those on lower incomes, advice is too expensive. Government needs to improve access to advice on pensions planning for those on lower incomes to avoid a living standards catastrophe.

Karen Barker, Head of Policy and Research at abrdn Financial Fairness Trust

Notes to Editor

This level of insight has been made possible due to the unique data asset Smart Data Foundry is creating by partnering with UK financial institutions to share data safely and securely. For this research, NatWest Group supplied Smart Data Foundry with aggregated transaction data from the current accounts for approximately 1.2 million UK customers from 1 January 2019. To protect customer rights and privacy, all the NatWest data is de-identified and accessed and analysed by Smart Data Foundry in the security of the University of Edinburgh Financial Data Safe Haven environment, a controlled and secure service environment for undertaking data research.

This is arguably the first time a large retail bank has provided such an extensive dataset to an external research institute. The support of NatWest Group has given Smart Data Foundry a unique perspective to observe and analyse what might have happened in real terms to older individuals’ finances during the pandemic, as well as allowing Smart Data Foundry to compare individuals’ financial vulnerability quantitatively before and after the pandemic struck. This extensive research was also augmented by the quantitative insight from interviews and focus groups with 62 advice practitioners from the voluntary sector who have practical experience supporting older workers.

About abrdn Financial Fairness Trust

abrdn Financial Fairness Trust funds research, policy work and campaigning activities to tackle financial problems and improve living standards for people on low-to-middle incomes in the UK. It is an independent charitable trust registered in Scotland.