UK financial mutuals seek reforms to narrow protection and savings gaps

The Association of Financial Mutuals has called on the UK government and regulators to make financial mutuals a central part of plans to expand the mutual and co-operative sector. In a new strategy, the trade body says reforms could improve household resilience, ease pressure on public services and direct more investment beyond London and the southeast.

The strategy, titled Closing the Gaps: Building Financial Resilience, links the role of member-owned financial firms to three national policy aims: helping households withstand income shocks, reducing strain on the state and the NHS, and broadening participation in saving and investment. AFM says the government’s commitment to grow the mutual and co-operative sector gives policymakers an opening to build a more inclusive financial system.

Mutuals are owned for the benefit of their members rather than external shareholders. AFM argues that structure can help them serve communities and customer groups that are less well covered by mainstream financial services providers. The association says its members already manage millions of savings, pensions, protection and healthcare policies across the UK and Ireland.

Three gaps identified

AFM’s strategy sets out three areas where it says the UK faces material resilience weaknesses. The first is a protection gap, with many people exposed if sickness, injury or unemployment causes a loss of income. The second is a healthcare gap, as ill health keeps large numbers of people out of work and adds pressure on households, employers, the NHS and the wider economy. The third is a savings gap, with some households holding little or no savings while others keep most money in cash when longer-term saving or investment may better suit their objectives, according to AFM.

Andrew Whyte, AFM’s chief executive, said the sector has experience supporting people during uncertainty and helping communities build longer-term resilience. He said mutuals could help address gaps in protection, healthcare and savings at a time of financial pressure for many households.

Whyte also said the strategy offers a practical route for government and regulators to increase mutuals’ role in improving individual financial outcomes and strengthening the economy outside established financial centres. AFM said such action would also support the government’s 2024 manifesto pledge to double the size of the mutual and co-operative sector.

Policy changes sought

The association is asking ministers and regulators to consider a series of changes intended to increase take-up of mutual products and reduce barriers to growth.

• Introduce frameworks for automatic enrolment into long-term savings, investment and protection products.
• Remove barriers that discourage consumers from taking up health cash plans.
• Change rules that limit mutuals’ ability to raise external capital.
• Widen access to targeted financial support and simplified advice.
• Reform the Public Interest Entity regime, which AFM says creates disproportionate audit costs for smaller mutuals.
• Implement the Law Commission’s recommendations from its review of friendly society legislation.

AFM said the government has already taken positive steps to engage with the sector, including work to understand barriers to expansion. The association said it will carry out policy engagement in the coming months based on the strategy’s recommendations.

This story draws on original reporting from Finextra Research.