There’s little escaping the fact that no one is getting any younger. In the next five years, the number of consumers aged over 65 in the UK is expected to increase by 1.1 million and the fastest-growing segment of the UK population are those aged 85 and over. The number of people aged over 65 already outnumbers those under 16.
The FCA has published a discussion paper (DP 16/1) Ageing Population and Financial Services, which forms part of its work aimed at ensuring consumers have access to products and services that are well-governed and deliver value for money in competitive markets.
The more that is understood about how markets work for older consumers the easier it will be to improve the outcomes for these consumers.
Risks/challenges associated with lending to older consumers
The financial services market, like any other consumer-led market is continually changing and evolving and as such, there’s no option but to embrace the changes and rise to the challenges such changes pose. Here is a brief overview of the four key issues that financial service providers may face with this changing demographic.
Providers need to be mindful that older consumers can sometimes become vulnerable consumers. This’s not to say that vulnerability has a direct correlation with age, as every consumer runs the risk of becoming vulnerable due to their personal circumstances, whatever their age.
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Older people will be more likely to encounter unpredictable life events such as ill health, cognitive decline and reduced mobility which will have a significant bearing on how they manage their money. The Alzheimer’s Society found that 76% of people with cognitive decline had experienced difficulties managing their finances.
It’s also a sad fact that personal circumstances leave many older people open to becoming a victim of fraud or financial abuse. Stronger measures therefore need to be in place to regulate against scams and help older people detect scams. Staff should be trained to direct older consumers to reliable sources of information and away from poor sources.
Communicating with vulnerable customers is not without its challenges. Experiences tends to show that consumers are often reluctant to disclose vulnerabilities and this can make it difficult for providers to communicate in an effective manner. Disclosing vulnerabilities should therefore be actively encouraged.
2. Making an informed decision
Evidence suggests that as we age we tend to rely less on reasoned, deliberative thinking and more on gut-feel and things learned through experience. Older people also find it more difficult to navigate the abundance of choice and are often slower to process information. As a result of this, older people tend to prefer simple choices with minimal options and information which is succinct. This is in contrast with the younger population who prefer a wide range of choices offering flexibility with the ability to create tailor-made options.
Older people in general are also less understanding of the financial implications of delaying decisions and so staff in the financial services sector should be trained on how to communicate effectively with older consumers.
3. Access to products and services
Compared to the working age population, fewer older people use the internet. Of people over 55 who do, 53% don’t use it for banking and 41% don’t use it for purchasing goods and services. As such, there’s a real need for firms to keep the needs of older customers in mind when they innovate. Having said this, current research shows that older consumers who use mobile and internet banking typically use it as frequently or only slightly less often than younger generations.
With some of the best deals only available online, this could discriminate against the older generation who either don’t have access to the internet or that would prefer to deal with someone face-to-face. Firms should take this account when offering online exclusive deals so as to avoid excluding this group of consumers.
4. Financial uncertainty
It’s often been the case that older people are more likely to find themselves victims of age discrimination. For retired people the key financial challenge is the need to manage existing financial resources over their entire retirement. This has led firms to use age as a risk factor in pricing financial products or even refusing to provide products to certain age groups.
Provided firms put in place different enhanced tests for assessing affordability and these risks are assessed as part of the lenders’ normal underwriting process, this should help older people have access to a much larger area of the financial services market.
What does the future hold?
It appears clear that this change in demographics represents both challenges and opportunities for financial services. The key appears to be developing new and innovative products to meet the needs of our ever-changing population. It should not be forgotten that older consumers are just as diverse as the younger population and so a ‘one size fits all’ approach should not be adopted. There appears to be a real need to balance innovation with consumer protection.
It should also be noted that adapting to these changes should also have benefits for the younger population as it will allow them to have access to information and services at an early stage to ensure that they have planned and prepared appropriately for financial provisions in the future.
It’s critical that our financial services markets are able to adapt to meet these needs which will be achieved provided firms work collaboratively with others to help bring about a positive change. While firms should not be ignorant of the risks associated with lending to an ageing population, equally these should not be exaggerated and it’s clear that with careful planning these risks are both tractable and manageable.
Charlotte Healey is a solicitor at Shoosmiths LLP