Regulatory body the Financial Conduct Authority has published a discussion paper on the ageing population and financial services, which is the precursor to the FCA publishing its strategy on the subject in the first quarter of 2017.
At 68 pages, Discussion Paper (DP16/1) is a mighty tome, with the great and the good working within retirement getting involved: product providers, mortgage providers, regulators, trade bodies, as well as ‘behavioural architects’ and psychologists.
As you would expect with the mix of people whose standalone papers are published within this DP, their views and concerns are varied.
However, common to many of the pieces is the view we are not doing nearly enough as an industry to make life easy for our ageing population to navigate an often bewildering array of financial choices in-retirement.
Let’s start with some stats on the size of that growing over 65 year old population in the UK. Between 2015 and 2020 the number of UK citizens over the age of 65 will increase by 12 per cent or 1.1m people, as against the increase of the overall population of 3 per cent in the same period.
The numbers aged over 85 will expand by 18 per cent (300,000), and the number of centenarians by 40 per cent (7,000). The number of UK people over the current official retirement age has doubled in the last 20 years and the over 85-year-old age group is now expanding faster than any other, according to the Office of National Statistics.
At the same time as this monumental demographic shift, chancellor George Osborne has unveiled the Pensions Freedom and Choice ‘revolution’ and in the private sector DB pensions look set for complete extinction within a decade.
Potential success story
The big, potential success story is auto enrolment. At the least AE has reversed the decline in retirement savings provision. But right now, some 11.9m of us are still under-saving for retirement, despite AE. Interestingly, three-quarters of under-savers are classified as middle- or upper-level earners.
Those are already exercising ‘Freedom and Choice’ are tending to do so with inadequate recourse to financial advice or even newly-created guidance services.
Only 8 per cent of the first wave of ‘freedomers’ since April 2015 decided to use the Pension Wise Service, and just 58 per cent of those going into drawdown in the last six months have decided to get regulated financial advice before doing so.
A woeful number of people are shopping around for drawdown or annuity offerings at-retirement. The feeling is not enough communication is going on and whatever communication is going out right now is clearly not working well to equip at-retirees with enough knowledge to make sound financial choices.
One suggestion made in this DP was a big (legal) stick needs to be wielded in the direction of providers, revising the Financial Services & Markets Act to place a duty of care for consumer outcomes specifically on provider.
Beaming in specifically on the growing group of over 65s, there is a recognition that those in-retirement need more tailored advice and support, more product options, which are better suited to specific later life needs.