Speaker: Money and Pensions Service (MaPS) chair Sir Hector Sants
Just over two years ago, the Money and Pensions Service (MaPS) made its first major strategic intervention into helping people manage their money. In January 2020 we launched the UK’s first ever national Financial Wellbeing Strategy.
Our UK strategy was developed with the explicit support of government. It drew upon a combination of 12 months of listening to over 1,000 stakeholders, and the experience of the three organisations that had been combined to form MaPS one year earlier.
The strategy sets a ten-year framework, with ambitious national goals within five agendas to drive change at scale and achieve our vision of ‘everyone making the most of their money and pensions’.
Whilst the strategy could never have accounted for the pandemic, and its profound impact on the financial lives of millions, Covid arguably made it even more significant.
The physical impact of the pandemic on the nation’s health, and the connected economic disruption, has been explicit; but it should not be forgotten that mental health problems have also increased significantly during this time.
For many who were already struggling, COVID-19 has made things worse. Some households, already in precarious financial positions before the current crisis, are now struggling to keep afloat.
Yet the pandemic has not impacted everyone in the same way. Whilst some have been unable to work – and so lost some, or all, of their income – others continued to work on a full salary but without the cost of commuting or socialising.
It therefore feels an important opportunity now, two years after the strategy was launched and as we see the ending of the latest set of precautionary pandemic restrictions, to take stock of the UK’s Financial Wellbeing.
Over the next 20 minutes I aim to provide you with a progress report on our UK strategy and what it means for your organisations, sectors, and the nation, and outline what we need to focus on to drive further change.
Firstly, a brief introduction to MaPS for those of you that may still be unfamiliar with our work.
Set up by the Financial Guidance and Claims Act in 2018, we have a statutory mandate to help members of the public make informed financial decisions by supporting the provision of financial information, guidance, and advice to those most in need of it.
We summarise this mandate through a straightforward vision: ‘everyone making the most of their money and pensions’. That is because when people feel more in control of their finances, individuals and communities are healthier, businesses are more prosperous and the economy benefits.
This vision may appear a simple one, but better wellbeing can only be achieved through several related components:
- numerical skills for appropriate financial literacy (or ‘numeracy’),
- learned capability and confidence in managing money, as well as
- access to the appropriate tools, products, and services (financial inclusion).
Financial wellbeing therefore goes beyond helping people make better financial decisions. It is significant because it is central to personal wellbeing, and thus living a contented life.
Indeed, according to our new Financial Wellbeing survey which we released last month: people who have high financial wellbeing (and feel secure and in control of their money) are amongst the most content in society. In fact, people with high financial wellbeing are more satisfied with their lives than those in households with the highest incomes in the country (over £50k per annum).
We also, however, recognise the limits of financial wellbeing. Whilst managing your money can make you feel more in control, money management is never the full answer to those that simply do not have enough.
Notwithstanding the challenges of real financial poverty, the importance of building financial wellbeing is clear, which is why we are working – alongside colleagues in government, regulators, and the financial services sector – to ensure that financial wellbeing is part of the desired social policy outcomes in building back better from the pandemic.
In particular, we have spent the past two years working collaboratively across the UK so customers can access high quality money and pensions guidance and debt advice throughout their lives, however and whenever they need it.
The primary example of this I would like to cite is in pensions guidance: where we have worked to ensure our offering is better defined and expanded.
MoneyHelper, our new consumer brand, provides one point of contact for impartial and free guidance on money and pensions. It complements our Pensions Guidance Transformation Programme with an emphasis on ‘the right guidance at the right time’.
Our aim is to create a seamless holistic customer journey, with a choice of channel options. This includes a new guidance appointment for those at risk of scams, and processes to support the referral to Pension Wise from providers.
From next year, schemes and providers will also begin to be legally compelled to connect to the pension dashboard ecosystem. Dashboards will become available to consumers to use when enough schemes have connected, and this will be a key step forward in encouraging people to plan for the future.
What I now would like to discuss are the two key areas of our focus in driving our wellbeing agenda over the next two years – that specifically reflect our mandate to support vulnerable people – those in or near financial distress.
We know that debt advice can – and does – change lives. Evidence shows that debt advice can help resolve people’s money issues, increase their confidence, improve their wellbeing, and set them on a road towards greater financial resilience.
As the largest single funder of free debt advice provision in England, MaPS already had a significant focus on the support people need. Events of the past two years have only made that focus more acute.
We have been working with the Treasury on a shared vision for how the debt advice landscape could change to enable more people to access free, expert debt advice using different channels – including learning lessons from remotely provided advice during the pandemic.
‘Breathing Space’ in England, a landmark policy giving people in problem debt the right to legal protections from their creditors, is a part of that vision for better debt advice. Alongside the 30,000 applicants for breathing space applications already received, MaPS has invested another £2.4 million in a pilot which is expected to support around 6,300 people living with severe mental health problems to apply for breathing space from their debts.
In direct response to the pandemic, we also acted quickly to secure extra funding to ensure capacity is available when the predicted demand emerges. This demand increase is emerging but not yet fully with us.
Yesterday MaPS announced that it has a maximum annual funding envelope of £76 million for the delivery of debt advice services in England, subject to the usual annual budget setting by government. This represents a significant increase from pre-pandemic funding levels, which totalled £43 million in 2019/20.
However, as many of you will be aware, these changes have not been without challenge from some people within the debt advice sector.
However, I believe our core objective – to make free of charge debt advice available to more people who need it, specifically ensuring the needs of people in vulnerable circumstances are met – is shared by all. Therefore, in light of this feedback, we have decided to pause some parts of our plans.
We had previously announced that we would not be proceeding with the current procurement of regional services. Instead, grant funding levels for these services will be maintained at similar levels in 2022/23 to currently. Our intention is to fund regional services at £30 million per annum until we conclude our work with the sector to identify the best approach and level of funding required to deliver local services.
We are very clear that in designing these services to increase capacity we will work to support everyone, particularly the vulnerable. Our long-term goal remains ensuring that all parts of society have access to, and receive, high-quality debt advice when they need it. I am confident our revised programme will represent a big step in this direction.
The other area of significant development I wish to highlight today has been in financial education for children and young people.
Education about money makes a difference, and it needs to start early. Evidence suggests that children start to learn vital money skills and habits between the ages of three and seven.
MaPS has already invested significantly in financial education projects to see what works for children and young people. We now have a substantial evidence base from pilots which only require seed investment to work at scale.
Indeed, NatWest has recently offered to scale-up our ‘Talk, Learn, Do’ workshops for 3–11-year-olds and their parents. One of many examples where we are working alongside the sector to push a broader wellbeing agenda to those that need it most.
However, there are still considerable strategic issues – as an organisation, sector and a nation – we need to tackle in the next eight years so that everyone can make the most of their money and pensions. In addition to building on our work to expand debt advice: helping those in financial distress I would like to highlight five areas where we need more action and engagement. Tackling these five points would be a major step forward in achieving the long-term goal of significantly raising the financial wellbeing of the nation
Firstly, we need to build short-term financial resilience. A savings buffer has traditionally been recognised as a first step to achieving this goal.
The past two years has seen a gradual depletion in savings for many in vulnerable groups, leaving them more at risk to financial shocks. Increasing energy bills and a prolonged pandemic recession will put a further squeeze on household budgets.
It remains hard to entice non-savers to start saving regularly to build a buffer. So, MaPS is working with industry and employers to test different defaults and incentives.
Providers are responding in different ways to the current environment. Some credit unions are taking forward a Prize Saver scheme, trying to entice new lower-income savers in that way in the absence of higher interest rates.
Offering payroll-deducted cash savings schemes through the workplace – tapping into default, behavioural biases with pay being taken at source – is another route we’ve been exploring. The testing of different nudges on ‘opt-in’ payroll savings schemes has shown some limited success in increasing take-up; however, we are more hopeful about ‘opt-out’ models.
Secondly, I spoke earlier about financial education and some of the progress we have made with individual pilots and studies.
I welcome this progress, but real success for financial education in the UK will ultimately require greater engagement from educational institutions. There is much work left to do in schools in partnership with the Department for Education and devolved governments.
In 2019, 5.3m children still weren’t getting a meaningful financial education in the UK. Only 34% of children recall learning about how to manage money at school or college and found it useful. The disruption to education caused by Covid may have made this situation worse.
Schools are, however, only part of the picture. Success in financial education requires effort from teachers, parents, and carers.
Evidence shows that parents and carers are the main source of learning for children and young people. Most children and young people say they would turn to their parents if they needed advice about money.
That is why we are currently focussed on scaling up proven toolkits to parents and carers – like our ‘Talk, Learn, Do’ programme – so that every child has the best start to their financial education, regardless of what school they attend or country they reside in.
Supporting children and young people in vulnerable communities with financial education should be seen as a core part of levelling up the UK. If we targeted supporting practitioners with consistent and available information on financial education, then the child in social services could theoretically have the same access to resources and knowledge as the child at a grammar school.
Thirdly, turning now to the core challenge. We need to narrow the information and capability gap between firms and consumers. In my view, this would require us to shift the guidance/ advice boundary.
The financial service sector is working to develop more focused guidance, delivered to consumers where they reside, in accessible forms. However, firms aren’t currently incentivised to undertake more prescriptive guidance. Indeed, the risk of getting it wrong can outweigh the reward of delivery.
Supporting children and young people in vulnerable communities with financial education should be seen as a core part of levelling up the UK.
We need to develop better guidance support for consumers to improve their capability. What is the solution?
The newly proposed FCA Consumer Duty represents a good opportunity. MaPS welcomes the Duty as a way which can help the financial services community reappraise the consumer protection framework and really take on board the lessons of the last few decades.
Under these proposals firms will review how they communicate with, and support, their customers to develop their confidence and ability to make financial decisions. We are particularly pleased that the latest version of the FCA consultation proposes enhancing consumers’ confidence in both the financial services sector and in themselves.
The overall focus on improving customer capability is admirable. But I would argue that we still need to move the boundary to make guidance more personalised, directive and delivered where possible by a non-commercial organisation. This might also provide a more reliable mechanism for judging whether the individual was equipped and informed to make good decisions too.
Fourthly, may I turn to the products and services – even competent and knowledgeable consumers need appropriate access to products and services to execute their needs.
We need more work to develop products which offer alternatives to high-cost credit, especially at a time when consumers are struggling and providers like Provident Financial have left the sub-prime market.
We welcome the work of Fair4All Finance to develop ‘no interest loans’ and to engage with mainstream financial services for wider availability of low-interest loans, as well as their core work with the community finance sector. We’re working with them to help raise awareness of community finance alternatives.
Finally, it is also important that we recognise other factors that may disadvantage people in relation to their financial wellbeing, such as digital exclusion.
The most recent Lloyd’s consumer digital index report indicates that, despite significant increases as a result of the pandemic, an estimated 5% of the population were still offline. A further 29% had very low digital engagement.
Using digital channels and other technologies to reach and impact more people is a key part of future access to appropriate financial tools, products, and services. But we should not forget the significant role of face-to-face human interaction – particularly for vulnerable people – when we are looking to support their tangible wellbeing.
Ultimately financial products should be simple, accessible and have customer wellbeing outcomes at their core. Simple and accessibly designed products can work just as well online, on the phone or in branch.
Before I conclude – I would like to leave you with this personal thought:
We know that when people feel more in control of their finances, individuals and communities are healthier, businesses are more prosperous and the economy benefits. As we build back better from the pandemic, we need to work across industry, government and the third sector to continue to promote financial inclusivity for all. We need all of us to put building financial wellbeing at the forefront of our institutional agendas.