The Government’s Financial Advice Market Review is looking at all aspects of financial advice to identify gaps before setting out recommendations by Budget 2016.
While the review focuses on investments, savings and retirement products, other areas should also be considered as part of its scope: in particular, protection, given the low levels of cover for too many individuals and families.
For instance, take-up of income protection in the UK remains low by international standards at around 11 per cent and a recent survey by the Money Advice Service found almost half of working age couples and families do not have life cover.
But the risks of not having cover are clear. Research by the Centre for Economic and Social Inclusion, commissioned by the ABI, found that 10.6m households – more than 60 per cent of working families – would see their income fall by more than a third if the main earner had to stop work because of ill health.
With this in mind, closing the protection gap should be a priority for the Government. At a time of severe fiscal pressures, increased take-up of protection insurance products could bring much needed help to the Exchequer in reduced expenditure on benefits, higher tax revenue and improved productivity.
The FAMR recommendations must therefore consider how advice and guidance can be improved to help consumers understand the benefits of protection. At the Finance and Technology Research Centre’s recent Protection Forum on FAMR it was agreed that, while there is not the same need for regulatory changes to protection advice as in the investment space, there are still issues the review could address.
Clearer and simpler regulation of advice is one aspect of it. But this must be supplemented by an effort from stakeholders to improve public knowledge about lack of financial protection. Without improved demand for advice it is simply not feasible we will see an increase in the take-up of protection insurance.
The industry is leading the way here, such as through our work with MAS and the Seven Families initiative. The Government and employers can also contribute. As part of its FAMR submission the ABI is calling for the Government and employers to develop a workplace Protection Statement.
This would allow people to check their combined income from the state and their employer in the event they could not work owing to illness or injury. This statement could be communicated as part of a person’s P60 or digital tax account and would give a much clearer and more accurate picture of the financial support actually available to them.
Consumers need to be made aware of their options with relevant information and advice to ensure they are supported if they are unable to work.
Joe Ahern is policy adviser for protection at the Association of British Insurers