The age of longevity

I hate the reference to this demographic change as the “ageing problem,” as some have used. I prefer to think of it as a golden age for the UK. Longer, healthy lifespans for our population – who enjoy the longest lifespan in history – is one of the crowning achievements of modern civilisation. It is something to be celebrated. It could also be a golden age for advisers if they grasp the opportunities.

As the Financial Conduct Authority has rightly highlighted in its Ageing Review paper announced last week, the financial services sector has to do much more to help cope with the challenges of an ageing population. This is not just because it’s good for the nation, it’s good for business too.

Despite the doom-mongers, never have so many people retired in such relative financial comfort. Never has so much wealth been passed down the generations and never have so many people aged over 50 required good financial advice.

The over-50s and retired people are an immense opportunity for providers and advisers, and it is no surprise that many have at last woken up to the at-retirement and post-retirement markets. Some advisers have been slow, but initiatives such as Solla (the Society of Later Life Advisers) and others suggest things are changing fast.

As Tracey McDermott, acting chief executive of the FCA, said: “The number of people aged over 65 in the UK is expected to increase by 1.1m in the next five years. There is a real and urgent challenge for the financial services sector to develop new and innovative products to meet the demands of our changing population. The publication of this discussion paper is intended to stimulate debate and discussion about these needs and how to meet them.”

So what role will financial advisers, planners, paraplanners and wealth managers play? So far, it is a mixed picture and that needs to change.

It is worth separating the ageing population into two main categories. Those on lower incomes and, unfortunately, those with poor or non-existent pensions in place will need support and guidance as much as possible. There is much to do, but services such as Pension Wise and others may be more appropriate than relatively expensive, one-to-one, paid-for financial advice.

For the better off, good advice will be critical and worth paying for, and advisers who can come up with a winning formula will do very well, but there are dangers ahead.

There are already signs that vultures and fraudsters are targeting the pre-retired and those in retirement, and there are particular vulnerabilities, here, that the FCA will need to focus on.

Regulation for the ageing population will need to be even more robust than it is for younger savers. There is a very high chance that someone who is aged 60, 70 or over will be ripped off. Their generation tends to be more trusting of those in authority, will be more exposed to scams and the sums involved will be large. Many will have pensions worth more than £1m.

There are already signs that vultures and fraudsters are targeting the pre-retired and those in retirement

Advice will need to be tailored to their needs. They may not want full holistic financial planning advice and may prefer instead to receive specific pensions planning advice that covers their needs and no more. More affordable, focused advice in other words. Advisers need to recognise this.

There is no doubt that the current retirement market is also too complicated, as the FCA implies, and too confusing for many to understand. Advisers and providers will need to be mindful of this and seek to simplify and cut out jargon as much as possible.

Perhaps, though, one of the biggest threats to people saving for retirement comes from the government itself. HM Treasury and Chancellor George Osborne have hinted strongly at the cutting back of pension relief for the middle classes, and the erosion of lifetime allowances and other key planks of pension planning. At the same time, Mr Osborne has introduced radical new pension freedoms that allow people to cash in their entire pension if they wish to, increasing the risks of crooks getting hold of the money.

Further challenges lie ahead and, here, the FCA must factor in changes to pension legislation in its review if it is not to blow the final whistle and find out that the game changed completely at half time.

Overall, I am supportive of the FCA’s initiative and I would urge all readers to spend time reading the paper and submitting responses by April. Handled correctly and with robust, sensitive regulation an older population that appreciates good financial advice will be a massive market for the adviser sector. If handled wrongly, financial advisers risk losing one of the great opportunities of our era.

Kevin O’Donnell is a financial writer and journalist