Millions of working households remain vulnerable to financial shocks despite signs of recovery from the cost-of-living crisis, with more than a third of employees classed as financially fragile, Royal London has warned.

Its Financial Resilience Report found that the average UK adult scored just 33% on its financial resilience barometer, placing the population in the ‘economically exposed’ category.

Some 35% of employees were classed as financially fragile, while a further 40% were economically exposed, showing that being in work does not necessarily provide financial security.

The impact of unexpected life events was also significant, with 42% of people who had experienced events such as bereavement, divorce or job loss in the past two years falling into the financially fragile category. Those households had average cash savings of just £1,136 and £77 of discretionary income a month after essential spending.

Demand for income protection has risen for a second consecutive year, with applications increasing 7% in 2025 after strong growth in 2024, although Royal London, one of the UK's largest mutual life, pensions and investment companies, said a significant protection gap remained.

The report added that advisers have an opportunity to reframe protection conversations around family resilience, helping clients understand how different products work together to support households facing a range of financial risks.

Gregor Sked, senior protection technical manager at Royal London, said: "Our Financial Resilience Report shows many households are operating with very little financial breathing space, meaning even a short interruption to earnings can have significant consequences when cash savings are low and disposable income is limited.

"That's why income protection should be viewed as part of a broader financial resilience strategy. Families aren't simply looking to insure against illness, they're looking for confidence that they will be able to withstand life's unexpected challenges."

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