The protection calculator: building financial resilience in working-age people


David Marjoribanks, policy manager for budgeting and savings, defines financial resilience and shares how, using a new tool, employers and people of working age can build it through raising awareness of income vulnerability. 

The UK has a financial resilience problem: many households have very limited financial resources to fall back on if they were to experience an income shock. A significant number of us are just one – not uncommon – life event away from falling into difficulty. Many of us do not even know how prepared would be. But knowing our financial position is important and can help us prepare for life events we may face.

What is financial resilience?

‘Financial resilience’ means our ability to withstand financial and endure periods of financial difficulty. Common life events which can cause financial shocks include illness, injury, job loss, relationship breakdown and taking on caring responsibilities.

A person’s resilience depends on a number of things, including:

  • the value of any emergency savings and liquid assets
  • how much debt they have
  • their ability to access affordable credit
  • the extent of financial protection they have (including insurance products, the extent of their employer’s sick pay and other workplace benefits, etc.)

Levels of financial resilience in the UK

At the Single Financial Guidance Body (SFGB) – which brings under one new organisation the services delivered by The Money Advice Service, The Pensions Advisory Service and Pension Wise – we’re focused on the challenge of improving consumer financial resilience. We know the scale of the challenge – our 2018 Financial Capability Survey showed:

  • 22% of adults (11.5m) have less than £100 in savings and investments
  • 21% of adults (10.9m) rarely or never save
  • 24% of adults (12.4m) would have to borrow or could not pay when faced with an unexpected £300 bill
  • 11% of adults (5.8m) have used high-cost short-term credit in the last year, and
  • only 26% of working-age adults (10.6m) have either critical illness cover or income protection insurance.

Low awareness contributes to low resilience

Part of the problem is that consumers generally have low awareness of the extent of their protection in the event of a financial shock. For example, research for the Financial Services Consumer Panel has identified low levels of knowledge among employees of their employer’s sick pay policies, and low awareness of the limits of statutory entitlements too.

And this awareness gap means limited consciousness of our vulnerability and risk exposure: it’s hard to know the extent to which you’re able to weather a storm if you don’t know how many holes the roof has.

That’s why the SFGB welcomed the Association of British Insurers’ February 2019 launch  of a new protection calculator. This tool enables consumers to input some basic information on their household, property, income and earnings, and then gives them an indication of what payments they would be entitled to if they found themselves unable to work due to illness or injury.

This protection calculator has the potential to help overcome the awareness gap, prompting people to confront their level of financial protection if they were to find themselves unable to work.

How employers can increase financial resilience in the workplace

Being unable to work is more common than we might think: around 400,000 people each year leave work and claim sickness-related benefits. Of the 32.5 million people currently estimated to be in work, that’s more than 1 in 100 employees.

Knowing what would happen in the event of an illness or injury that causes extended absence from work may be an important first step towards taking action to build financial resilience. Confronting our level of financial protection and vulnerability may prompt us to consider how we can build our resilience – for example, by increasing the level of accessible savings and/or through taking out insurance.

Employers have an important role to play. We hope that employers will signpost their staff to the calculator and take the opportunity to alert them to their own policies on sick pay. As well as utilising the protection calculator and integrating it within their employee portals, employers can provide information and guidance to employees (using the Money Advice Service employer portal resource Making the Most of your Money, for instance), offering workplace-based savings and affordable credit schemes, providing group protection policies, and offering employees access to regulated financial advisers.

Ongoing challenges

Increasing awareness of risk exposure alone will not solve the UK’s resilience problem – there remain significant challenges. For example, it can be hard for consumers to know how to navigate a complex marketplace of many different products and services and, with so many complex options to choose from, they many face cognitive overload.

Consumers also face competing demands on their resources, and have to make trade-offs, weighing up and prioritising between:

  • paying off debts
  • building ‘rainy day’ savings
  • long-term saving for retirement, and
  • protecting against misfortune through insurance.

Policymakers, financial services and money guidance providers need to understand the choices that consumers have to in their financial decisions, and look at how we can help consumers navigate the marketplace.

Tackling low financial resilience is a shared challenge in which government, employers, financial services, civil society and individuals themselves all have a stake. Improving awareness of our risk exposure and confronting our level of financial protection is an important foundation.

Learn more

Explore further resources for employers and financial services, and The Financial Capability Strategy for people of working age.

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