Households may buffer themselves from pay freezes with endowment policy cash

Publication date | 08/03/2010

More than 16 million workers do not expect to receive a pay rise this year, while 32 per cent of individuals will get a rise below the 3.5 per cent Consumer Price Index, a new report has revealed.

The study by uSwitch.com found that a third of people believe they will be financially worse off in 2010 than they were last year.

With income on hold but debt repayments continuing to climb, many Britons may wonder where they will find the money to help clear their borrowings while also contending with everyday expenses.

Chris Radford, chief executive officer of aap, the UK's biggest buyer of endowment policies, said some of its customers with underperforming endowment policies had decided to sell them in order to raise the cash required to clear what they owe.

Struggling with repayments on a frozen income

The uSwitch.com survey found that 11 per cent of consumers spend beyond their means.

Indeed, relying on credit and store cards and personal loans could prove dangerous during the current economic climate.

With the interest rates on debt pushing up balances but income frozen, Britons could soon find their household finances are in a deficit.

Those employees who expect the lowest pay increases are teachers, civil servants and nurses, while bankers and lawyers believe they will not be impacted upon as much, the study showed.

"With the pay crunch continuing to bite, consumers need to start paying serious attention to their spending habits. Short-term debt solutions may seem an efficient way to fund spending, but they can lead to severe long-term debt issues if not managed properly," said director of consumer policy at uSwitch.com Ann Robinson.

Sell your endowment policies for financial freedom?

Mr Radford, from aap, said some of its customers with unwanted endowment policies had decided to sell them in order to prepare their household finances for future pay freezes.

He added that should aap make an offer to purchase an endowment policy, it will always pay more than the surrender value offered by the insurance company.

Reasons to sell your endowment policy