How should the financial sector serve the ageing consumer?

 

As breadwinners become retirees, how can banks and other financial establishments change their practices to support them?

 

Did you realise that we are living in an ageing society? The number of people who are aged over 65 already outnumbers those who are under 18*, meaning that our financial services, amongst other sectors, will need to adapt and diversify to meet the needs of older customers.

 

There are a number of important financial implications for an aging society. Take pensions for example. All current models are based on the idea that there will be a greater number of younger people entering the job market and paying taxes than there will be older people retired and being supported by a pension. Now that this is no longer true, the model needs to change to be sustainable. 

 

Furthermore, a new system will need to support more people for more time, as people are living longer. While someone retiring in 1965 would have expected to enjoy only a few years of retirement, now it is not uncommon for retirement to last two to three decades. The number of centenarians living in the UK has risen by 73% over the last decade to 13,350 in 2012.*

 

The elderly are considered to be a vulnerable group, according to a document produced by the Financial Conduct Authority, in which experts suggest that as we age our confidence in our own ability to manage our finances increases, yet functional numeracy and awareness of financial concepts declines steeply at around age 75. 

 

Older generations also find it more difficult to navigate their way effectively through too much choice and information. The recent introduction of greater freedoms in how people manage their pensions greatly increases the options and complexity surrounding retirement decisions.

 

There are a range of unique problems faced by an ageing customer in the financial market; there is a likelihood of increased care costs due to declining health and wealth tied up in assets such as property. Underestimating life expectancy may affect the financial product choices that retirees make.

 

Connection to the financial system can be another issue, with branch closures and digital exclusion disproportionately affecting older people’s financial capability. There are questions about whether this will still ring true when the current “tech-savvy” generation reaches retirement age. As they are so used to working and socialising online, this seems less likely to be an issue in the future. 

 

Finally, the elderly are likely to find themselves victims of age discrimination. This is not permitted in most service industries, but financial services are exempt. Firms can use age as a risk factor in pricing financial products, or even refuse to provide products to certain age groups, e.g. travel insurance, and mortgages. 

 

Older consumers are a diverse population, with different beliefs, behaviours and needs, all of which affect the way in which they interact with money and financial services products. The financial sector needs to avoid making assumptions about capability based on people’s age and to devise jargon-free, accessible financial products and services to meet the needs of our ageing population. 

 

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*Sources

 

Age UK, Later Life UK factsheet Jan 2016 

FCA Ageing Population Discussion Paper