Data and methods: interviews with couples

Based on a broader project, this article draws on data generated from in-depth face-to-face interviews with sixty-one couples. The interviews were split between the Reading area and Glasgow. One aim of the project was to capture what households with at least one member in full-time employment thought they would rely on financially in the event of unemployment.Footnote ¹ The interview schedule covered the areas of public provision, private insurance, savings, property, familial and employer-related provision. There was also scope for interviewees to suggest other forms of income security not given prior consideration by the research team. Couples were asked about both their attitudes towards diverse sources of income protection and any planning related to these.

Couples were interviewed together and the analysis is at the household level. The sample selection process aimed to explore attitudes within a fairly homogenous group of households, rather than to capture much further differentiation. Couples were selected according to certain characteristics, which delineate a group of households likely to have both the means and the motivation to protect their household income.Footnote ² Both partners were aged between thirty and fifty-five, so as to have the best chance to recruit households of core working age, who had finished training, but were not yet preparing for retirement. Couples had at least one dependent child living with them. As reflected by some of the interviewees, having a young family is a phase in life associated with changing attitudes and increased motivation to consider income protection, and this was the rationale for focusing on couples with dependent children.

All couples had a total household income above £40,000 which put them in the top 40 per cent of the equivalised household income distribution. This threshold was selected as an indicator of a household's relative ability to engage with a range of forms of income protection. The baseline is just a little higher than the median income for households with the above characteristics, and not much above £37,000 which is considered necessary for a couple with two children to have a ‘socially acceptable’ standard of living (Davis et al., Reference Davis, Hirsch, Smith, Beckhelling and Padley2012: 29). The sample was broadly divided into just above middle and higher income households. Only homeowners were selected, typically with a mortgage still to pay. The majority of households in the UK sharing the characteristics outlined above are homeowners.Footnote ³ Furthermore, homeowners have recourse to certain income protection options that are of interest to the study.

The focus of the paper is on income protection planning against the loss of earnings due to unemployment, hence the selection of households with at least one member of the couple in full-time employment, and, in some cases, in self-employment. The majority of respondents worked as employees, and for these respondents there was a roughly even split between the public and private sector, with just a few working in the third sector. In the public sector, interviewees were working in the NHS, in schools, in local government, as civil servants and police and fire officers. In the private sector, respondents worked for employers in both the manufacturing and service sectors. Of the 122 interviewees, only six did not work due to having to stay at home to care for children, one was unemployed and one was re-training. Most couples were fully dual-earner couples (both working full-time), whilst in just over a third of couples, one of the couple (usually, but not exclusively the female partner) worked part-time. Nearly everyone in employment was on a permanent contract and the majority worked for large employers (see Appendix, Table A1 for further information).

Given their number, interviewees were selected to be indicative of households with these characteristics rather than representative of the whole population of such households.Footnote ⁴ As such, the Family Resources Survey (FRS) has been used to provide a representative descriptive overview of the unemployment-related private insurances held by households with these characteristics in England and Scotland. Commercial market data provided by Experian on private insurance has also been used (Experian, 2011). Interview transcripts were thematically analysed, and contextualised results are presented in the following sections, each associated with a particular field of income protection. The thematic analysis considered attitudes to the various sources of income protection, both those which households expect to rely on and those they do not. The interviewees’ own words are used where illustrative, and attributed to them by anonymised names. It should be noted that the aim was to identify themes associated with each source of income protection, rather than to derive a typology of responses or attitudes.

Public provision

Public benefits in many European countries reflect incomes from previous employment. Earnings-related unemployment insurance in France or Germany, for example, offers better-paid employees relatively high rates of income replacement. Flat-rate benefits in the UK are considerably less generous, particularly from the perspective of better earners. Jobseekers Allowance (JSA), the current version of publicly available benefits for those unemployed, provides contributory transfers for six months followed by means-tested JSA support. In 2011, claimants aged twenty-five or older were entitled to JSA of £67.50 per week, which represented about 10 per cent of average weekly earnings, having steadily declined from 19 per cent in 1978 (Evans and Williams, Reference Evans and Williams2009: 126). For single persons out of work for a longer period, calculations indicate that the UK provides a level of unemployment benefit which puts it among the five least generous of the twenty-nine OECD countries. Household context matters, however. Taking account of additional benefits, especially housing allowances, the level of public provision in the UK relative to other countries improves considerably, at least for some groups of unemployed (Howell and Rehm, Reference Howell and Rehm2009: 83; OECD, 2011: 42). Still, even relatively modest savings affect the entitlement to means-tested JSA, and claimants are disqualified if partners work for twenty-four hours per week or more. Benefits therefore can be assumed to be of little relevance for better earners, and especially for households with two adults in paid work.

A second public source of income during unemployment is statutory redundancy pay. Once again the reliance on statutory redundancy pay offers relatively little financial security. Many better earners may fulfill the eligibility requirement of two years service with the same employer and those who are at least forty-one years old would be paid more than younger colleagues (1.5 rather than one week's pay per year of service). However, the maximum number of years which count towards redundancy pay is twenty and the maximum weekly pay in 2011 was £400. This makes the UK one of the less generous countries in the EU (Kaupinnen and Meixner, Reference Kaupinnen and Meixner2005).

The fact that neither JSA nor the statutory redundancy payment provide levels of income replacement which above-average earners are likely to consider as adequate is reflected in our interviews. None of the sixty-one couples regarded statutory redundancy support as a sole source of income security, and very few expected state benefits to contribute to family income in the event of unemployment. Even after prompting, only two couples considered unemployment and related benefits as their prospective main source of income replacement.

Overall three key themes emerged with regard to public unemployment benefits: irrelevance, ignorance and ambiguity. Although around a third would still expect to receive whatever they might be eligible for, most of our respondents dismissed JSA or other forms of state benefits as irrelevant to them. The level of unemployment benefit was considered as ‘peanuts’ (Rebecca) or ‘next to nothing’ (Quentin) or ‘a tiny amount’ (Coira) and would ‘probably keep my toothbrush in batteries for a week’ (Pippa). To some extent such perceptions may have been influenced by a lack of knowledge. Even when well-judged in terms of the drop of income these households would experience if they were to rely on JSA as a sole source of income, most respondents were unclear about the actual (or even approximate) amount of JSA. Moreover, there was a widespread assumption that JSA was available only as a means-tested benefit, with respondents ruling themselves out as being eligible because of savings or their partner's earnings.

There were ambiguous feelings about the appropriate basis for entitlement to unemployment support. A notion of reciprocity was strongly supported by many, although not necessarily linked to national insurance. Interviewees referred more generally to having ‘paid in’ and thus being entitled to receive support in return. Representing many others, Justin stated that he had paid ‘probably hundreds of thousands of pounds of tax over the years’ which should entitle him to receive some financial return should he find himself out of work. More specifically, there was some support for a system which ‘for the first three months’ would pay ‘a wee bit more’ in return for ‘a wee bit higher insurance contributions’ (Catherine). By contrast, other respondents supported the principle of need as the appropriate and sole criterion for benefit eligibility, tempered with an anxiety of potentially encouraging perverse incentives. Benefit claimants in receipt of various types of transfers, and in particular of housing allowances, were regarded with suspicion. Even respondents who in the past had relied on JSA themselves rejected the suggestion of increases in benefit rates: ‘if you gave them more money they would stay on the social even longer’ (Gavin). This belief was often held in conjunction with the notion that work was there if you wanted it, even if ‘it was’ stacking shelves at Asda’ or as a ‘security guard’. Similar perceptions of suspicions of widespread benefit fraud, coupled with claims of a strong personal work ethic, are common in other countries too (see, for example, Taylor-Gooby and Martin, Reference Taylor-Gooby, Martin and Clasen2011). However, the strength of the feelings of resentment and dismissal towards state unemployment benefits was striking and this may arguably be reinforced by the level and structure of public provision. In any case, our interviews seem to reflect a clear lack of middle-class solidarity for publicly organised risk sharing in the area of unemployment compensation (see also Clery, Reference Clery, Park, Clery, Curtice, Phillips and Utting2012).

Private insurance, savings and property

Private unemployment insurance is faced with a number of actuarial and other problems (Barr, Reference Barr2001). One is the status of unemployment itself. The probability of becoming, and remaining, unemployed is neither random, independent or individualised. Sudden changes in economic contexts can substantially influence the incidence of unemployment while the closure of large local companies can affect other businesses in a particular region, thereby making unemployment self-reinforcing. Moreover, the actuarial calculation of insurance premiums is hampered by adverse selection problems, as well as potential moral hazard. The former refers to the difficulty of insurers to assess individuals’ risk status, the latter to the inability of monitoring individuals’ behaviour.

This does not mean that private unemployment insurance is not available. However, it means that insurers tend to offer policies which apply certain restrictions. For example, stand-alone insurance policies (such as Income Protection Insurance; IPI) are open only for people with permanent employment contracts, and provide benefits (typically equal to 50 per cent of previous earnings) up to a certain maximum.Footnote ⁵ Cebulla (Reference Cebulla2000) estimated that about 6 per cent of working-age individuals were covered by a form of unemployment insurance in 1997 (see also Burchardt and Hills, Reference Burchardt and Hills1997). According to the Family Resources Survey, the proportion of those with stand-alone unemployment or redundancy cover was below 2 per cent of all households in 2004/05 and around 5 per cent of households with the characteristics of our interviewee group (Table 1). Amongst the sixty-one couples we interviewed, only two were covered by an Income Protection Policy (IPI).

TABLE 1.

Households with at least one policy covering redundancy (England and Scotland), 2004–05

Note: FRS, 2004–05. Estimates produced using weights. Differences between countries are not statistically significant.

More common are policies linked to the need to maintain monthly mortgage payments (Mortgage Payment Protection Insurance – MPPI). Obviously, these already constitute a restriction of unemployment insurance to somewhat better risk groups (mortgagers only). Moreover, eligibility rules exclude persons without permanent work contracts and stipulate a minimum period of employment (often one year), benefit waiting periods apply (generally between one and three months), as well as a maximum period of benefit entitlement (typically twelve months).Footnote ⁶

MPPI policies may include other risks such as sickness, accident or death. Not surprisingly coverage rates are thus somewhat wider than those of IPI (unemployment) policies. According to Family Resources Survey data for 2009/10, half of the households with the same characteristics as our group of couples had MPPI and, of this group, 27 per cent had a policy covering them for unemployment. This is reflected in our interviews. Of the couples we talked to, fifteen reported some form of unemployment-related MPPI, and seven of these considered it as their main source of income security in case of unemployment. For most of these couples, only the loss of the higher (generally but not exclusively male) income earner was insured. Possibly associated with periods of house buying and the mortgage industry, younger couples were more likely to have MPPI than older couples. This is supported by commercially commissioned surveys which show that MPPI policies are particularly prevalent among couples in their late twenties up to the early forties who have slightly above-average paying jobs (Experian, 2011).

While very few couples expected to rely on private unemployment insurance as their sole source of income replacement, private cover was considered to contribute to a sense of ‘peace of mind’ which could not, or could only to some degree, be gained from other forms of income protection, particularly within a context where accumulating sufficient savings was a perceived impossibility due to other outgoings. However, having private protection is not necessarily evidence of strategic planning associated with unemployment. Since MPPI covers the inability to make mortgage payments, other risks (such as illness) may be more relevant for entering into insurance contracts. Indeed, rather than making references to unemployment insurance specifically, respondents more typically talked about the need of ‘having the mortgage covered’. Moreover, rather than pro-actively selecting private unemployment insurance as a form of income protection, in several cases mortgage advisers seem to have played a role, raising the level of risk awareness associated with the purchase of mortgages, or even suggesting that MPPI was a compulsory policy linked to a mortgage deal.

A few respondents stated that they would like to have been insured, but felt that they could not afford it. Some interviewees felt that private insurance was irrelevant to them given their particular circumstances of perceived job security (discussed below) or because they relied on other forms of income protection, such as savings, but this did not mean that they would not consider it if circumstances changed.

However, many other couples categorically ruled out private unemployment insurance for three main reasons: cost, value for money and lack of trust. Many considered it as ‘ludicrously expensive’ (Justin), and a ‘rip off’ (Ted). The perception of private cover representing poor ‘value for money’ was often associated with suspicions towards the insurance industry. Since the 1990s, there have been several widely publicised instances of banks and insurance companies having to pay compensation for aggressively selling (and mis-selling) policies, such as private pensions (early 1990s), mortgage repayment products (early 2000s) and, most recently, policies which cover credit card repayments. These extensively reported instances may help to explain widespread notions of mistrust. Respondents stated that ‘there has been a lot of bad press about that sort of thing’ (Felix), compounding feelings that they would not receive any pay-outs from the insurance company since ‘there is always a clause that it doesn't let you get it’ (Flora), and that banks made ‘an awful lot of money out of them and they're very poor at paying out . . . always finding ways that they don't have to pay’ (Justin). Some respondents had certain types of optional insurances, such as life insurance, and considered others as ‘necessary evil, you have to have it on buildings and cars but I wouldn't do it on anything else’ (Justine).

Compared with private unemployment insurance, personal savings figured more prominently as a source of income protection, with two main themes becoming apparent. For some, savings were regarded as a temporary source of earnings replacement. Having savings equivalent to three months wages is a commonly expressed ideal espoused by financial advisors, and was often cited by our interviewees ‘sort of three months in the bank as a buffer against the random stuff happening’ (Ben). Respondents considered savings as a way of compensating for the loss of earnings at least for some time: ‘we could survive probably with our savings and that for a year’ (Felix). Couples might also rely on wider family savings support such as ‘the bank of mum and dad’ (Brian). However, savings as a stop-gap until another job had been secured were considered as an important source of income protection typically by couples belonging to the higher income bracket (see Appendix, Table A1).

At the time of our interviews (2010–11), the financial and subsequent global economic crisis had become fully manifest. Somewhat surprisingly, this had some, albeit not very strong, influence on couples’ attitudes towards and engagement with diverse sources of income protection. However, higher inflation and tax rises were felt to be putting pressure on disposable income, making savings more difficult especially for the lower income group. ‘Every time you try to save money then . . . something happens and you've got to spend it on something’ (Quinn). At least one household had used up savings during a recent spell of unemployment and expressed that it would take them some time to build up savings to sufficient levels to provide protection should one partner become unemployed again. In the case that one partner in the couple was not working full-time, a change in their working hours in the event of unemployment of their partner was an oft-cited option by interviewees.

As all of our households were homeowners, and most repaying mortgages, one option of adjusting to reduced income due to unemployment would be to take advantage of some mortgage lenders allowing ‘mortgage holidays’, or even to resorting to re-mortgaging which could free up disposable income. A more radical option would be ‘downsizing’, that is selling the current property and moving into a less expensive dwelling. Many households acknowledged this as a possibility, although most likely only as a last resort after other options had been exhausted, or in case of longer periods of unemployment. As discussed below, such a prospect was not expected by any of our couples.

Employers as a source of income security

Severance pay offered by companies beyond that which is legally required forms part of the employment contract between many employers and employees. Given the mostly private nature of this agreement, there is a paucity of publicly available information. There is no comprehensive database or source of government survey data which would allow for a systematic assessment of the scope of occupational provision with regards to redundancy pay. Commercial ventures offer benchmarking services to human resources departments, but this type of information is not generally available. Nevertheless, it is clear that large employers in particular often exceed the statutory minimum redundancy requirements (IDS, 2009), removing the earnings cap on a week's pay, for example, increasing the number of weeks paid per year of service or simply making additional lump-sum payments to redundant workers. At times such payments are incorporated in collective agreements but often simply either offered by employers or agreed with trade unions at times of looming redundancies. Lloyd (Reference Lloyd2003) found that most large employers exceeded the statutory minimum. Some agreements in manufacturing included up to three-and-a-half weeks pay for each year worked for up to two years, depending on age and completed years of service, with no earnings cap (Lloyd, Reference Lloyd2003). Other corporate arrangements, such as occupational pension schemes, might be used as part of a redundancy package, offering a pension more generous than normal to those taking early retirement. In addition, employers might offer a lump-sum ‘severance payment’ to staff in order to avoid legal action against dismissal. Currently, £30,000 of any redundancy payment is tax free.

The relevance of companies compensating staff made redundant can be gauged in the light of some aggregate information. In 2010–11, the DWP spent a total of £4.04 billion on JSA to about 1.5 million claimants at any one time (DWP, 2012). By comparison, in 2010 British employers paid out a total £4.4 billion in redundancy payments to about 470,000 employees, with an average payment of just under £9,400 (HRmagazine, 2011). It is not only private sector workers but also many public sector employees, such as NHS staff or civil servants, who are offered, for example, a month's (rather than a week's) pay per year of service. Many local authorities use other ‘discretionary multipliers’ (e.g. of 1.5 or two times statutory redundancy pay entitlement) to calculate personal redundancy pay packages. In 2009, the average payout in the public sector was close to £18,000 (The Guardian, 5 July 2010). It should be pointed out though that there is a considerable level of variation, both across sectors and within the same sector.Footnote ⁷

Against this background it is not surprising that well over half of our couples regarded occupational redundancy pay as a very important source of income protection. This applies especially to those employed in the public sector or by large private companies. Disregarding strong feelings of job or employment security (discussed below), couples in the older age bracket and higher income group in particular perceived firm-level-based redundancy entitlement as by far the most important single source of income protection in case of unemployment. By contrast, interviewees who did not think that they could rely on such protection had either not been in their current job for a sufficient amount of time, were employed by a less generous private employer or were self-employed.

On the whole, three themes emerged from our interviews: a general awareness that the level of redundancy pay is related to tenure, an expectation of occupational severance pay providing a relatively good level of protection, but also notions of declining generosity. Typically, couples were unsure about the exact amount and nature of their potential redundancy packages. However, there was a general understanding that this depended on age and the length of employment with the current organisation.

Some respondents expected considerable amounts (a ‘big wad’, Pippa) that could provide financial support at current living standards for the household for a period between jobs for at least six months. Cedric stated, ‘probably a year and a half maybe. And obviously you would take stringent measures to cut back. So maybe two years. Two years.’ Others expected to receive sufficient to cover full wages for half a year or so. Rebecca: ‘it's not a huge redundancy, but it's enough to see us through for about six months so there would be a six month period where we could live off of that whilst looking for another job’.

A few interviewees had actually experienced redundancy in recent years, and had received severance pay on what they considered to be generous terms. Moreover, as new employment had been found relatively quickly in many cases, redundancy money had not been used as unemployment cover but as a contribution to savings for something else (such as children's university education). However, several interviewees assumed occupational redundancy as having become less generous in recent years. Mhairi, a public sector employee, stated: ‘in the past many in my department have had thousands and thousands of pounds redundancy payment but the government now are reducing that over time’. Karl, a civil servant, claimed he would be entitled to ‘seventeen or eighteen months’ salary. But he was also aware of recent cut-backs to redundancy payment deals in his sector.

It appears that in some instances the switch to less favourable terms was made more palatable to current employees. Roy, a private sector employee, reported:

Several more responses added to an impression of a scaling down of existing occupational provision in case of redundancy. According to reports in popular papers there are certainly suggestions of redundancy packages becoming less generous both in the private and the public sector in recent years (e.g., Daily Echo, 2 December 2011). Many of our respondents may thus overestimate the actual and future level of redundancy pay they may be entitled to.