April 24th, 2023
24 million people are “financially disengaged”. Are you one of them?
There’s a good chance you’ve seen headlines over the past year discussing the cost of living crisis. Indeed, the BBC reports that inflation stood at 10.4% in February, up from 10.1% in January 2023.
High costs have been putting more and more financial pressure on those living in the UK. According to a survey from the Office for National Statistics, 49% of adults who reported being behind on energy bills between 14 September 2022 and 8 January 2023 also reported high stress and anxiety levels.
On top of this, 22% of Brits – equal to 11.5 million people – reported borrowing more money or using more credit due to the increased cost of living between 25 January and 5 February 2023.
When faced with the mounting pressures caused by the cost of living crisis, it may be tempting to disengage yourself entirely from the issue. If you relate to this, you’re not alone – a study from Legal & General found that 24 million adults in the UK reported feeling this way.
So, are you feeling financially disengaged? And if so, why is it essential to reengage yourself with your finances? Continue reading to find out.
Legal & General found that many in the UK are already feeling financially disengaged
In today’s world of high prices and market volatility, it’s understandable that some would become financially disengaged. In fact, the study mentioned above found that more than 24 million adults in the UK are disengaging with their wealth.
Financial engagement, or the act of actively taking an interest in investing for the future, can put you in a much better position financially, no matter your age.
Perhaps expectedly, over-55s are more financially engaged than the rest of the population – 62% compared to 54% respectively.
Despite this, many are still inactive when it comes to retirement planning. Indeed, the research found that roughly 1 in 3 people don’t currently check their workplace pension, while around a quarter don’t review their personal pension.
Furthermore, 20% of people fail to engage with their retirement at all by the time they reach midlife.
If you’ve disengaged with your finances in recent months, you may be happy to know that simply changing your behaviour now could be a step on the right path to financial engagement.
In fact, of the 24.5 million people that felt financially disengaged, 10% felt more engaged after changing their behaviour.
Read on to discover two reasons you should stay financially engaged during the cost of living crisis, and some behaviours you can change to actively maintain your financial plan.
2 critical reasons to stay financially engaged during the cost of living crisis
1. Disengaging with retirement planning could leave you with a shortfall
If you are starting to feel increased financial pressures as the cost of living crisis continues, you’re likely going to search for ways to cut costs and save money.
One cost that you may wish to reduce is pension contributions. Yet if you halt them now, you could end up with a shortfall when you eventually retire.
Not only will you be saving less by pausing or reducing your contributions, but you’ll likely also miss out on valuable tax relief from the government.
Aegon offers a fitting example to show how beneficial tax relief really is. Say you pay £400 a month to your workplace pension scheme. The pension provider will typically claim basic-rate relief at source, meaning a gross contribution of £500 each month.
If you’re a higher- or additional-rate taxpayer, you can claim further tax relief through self-assessment.
Ultimately, if you paused your pension contributions, you’d essentially pass up on this “free money” that’s added to your pension fund.
All in all, if the cost of living rises even further later in your life, the contributions you make today could increase your chances of still being able to support your dream lifestyle without the need to cut back significantly.
2. Remaining engaged could help you stay proactive in setting financial goals
When you understand precisely how much is in your retirement fund, you can create realistic and attainable goals for what you’ll do when you eventually give up work.
Remember: setting yourself goals is the easy part; sticking to them is where the difficulty comes in. If you’re feeling worn down from the current economic climate and are financially disengaged as a result, you may find it tricky to maintain the willpower needed to achieve your goals.
So, it may be worth actively checking in with your investment portfolio to avoid this disengagement. By doing so, you can see exactly where your money is being invested and how it is performing, which could, in turn, spur you on to stay engaged with your finances.
Of course, investments and your pension are just two aspects of your financial plan that require active engagement. It may also be worth taking a close look at your:
- Estate planning
- Remortgaging options
- Emergency funds
- Debt management.
Perhaps the best way to avoid financial disengagement and remain proactive about your plans and goals is by speaking to a financial planner.
By seeking independent advice, your financial planner can help you forecast where your pension savings will be when you eventually retire, allowing you to see how different scenarios could affect your fund.
And, if you have specific goals in mind, we can help you see what adjustments need to be made in order for you to reach them.
Get in touch
If you’re feeling financially disengaged and finding it challenging to stick to your long-term financial goals, then we can help.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.