Posted: 29th March 2016


On the 22nd February 2016, the FCA published its latest discussion paper (DP16/01), which focuses on the UK’s aging population and the implications this has on the future of the retirement market.

Given that the number of UK consumers aged 65+ is expected to increase by 1.1 million in the next five years, the regulator is keen for firms to adapt their approach to ensure that financial products continue to work for older customers throughout the product lifecycle.

The FCA asserts that from their research “One message comes through loud and clear: older consumers are diverse and one size does not fit all for our ageing population.”

Vulnerability can arise in every customer’s circumstances, but the chances increase in the elderly due to factors such as a deterioration in their understanding of financial products or a higher likelihood of suffering bereavement. Regardless of whether vulnerability is temporary or permanent (and exactly what this means to a customer’s experience and outcome) there is a need for more detailed thinking here.

The FCA has established a team that will look specifically at the challenges facing financial services attributable to the aging population.

Key Findings

In DP 16/01, the FCA describes two broad areas of concern:

1.How older consumers assess their own needs

  • Only 8% of those who took advantage of the April 2015 pension freedoms rules did so after engaging with Pension Wise, and this brings into question whether those accessing their pension funds obtained the correct level of advice, or were issued the necessary retirement risk warnings
  • FCA research shows that very few think about living beyond the age of 80, creating a very real gap between the retirement experience individuals provision for and reality – this can have negative effects on both firms and consumers
  • The risk of another mis-selling scandal – similar in magnitude to that of personal pensions in the 1990s – seems high due to the lack of available advice for many consumers when they come to purchase retirement products

2.Barriers to accessing financial products and services

  • The regulator found that emerging technology can present barriers to access, stating that “older people are less likely to be digitally included, and prefer accessing services face-to-face”
  • Firms are currently using age as a risk factor in their pricing of financial products, even excluding groups on the basis of age. However, the FCA challenges this: “the insurance industry can no longer take gender into account when setting prices, so we question whether it should be allowed to discriminate against older people”
  • Customers’ reluctance to disclose vulnerabilities can make it difficult to discern the exact situation they may be experiencing in order for firms to provision for it

Regulatory next steps

It’s clear that the industry must commit to further thinking on vulnerability and the ageing population. Following the discussion paper, the FCA will conduct further research, a literature review and a segmented study of older peoples’ experience with financial services and products.

The deadline for responses to DP16/01 will be Friday 15th April 2016.

A series of round tables with FCA stakeholders about the ageing population will take place during the second and third quarters of 2016, as well as ongoing bilateral engagement.

You can expect an FCA strategy on the Ageing Population to launch in 2017, but even prior to the FCA’s conclusions, firms can begin to take steps to improve the experience and outcomes of older customers, making transitioning to new rules smoother and less impactful on their operation.

Implications and considerations for firms

The most proactive firms will already have thought in detail about what impact the ageing population is having on their business model. If you are at an early stage with this, reflect on the following:

  • Access – as firms’ innovate and evolve their business models, can both todays and tomorrows older customers continue to engage with your firm in a way that delivers fair outcomes? Firms should be closely monitoring the retirement behaviours of their customers. For example, their true level of interaction with technology, or the advice or guidance they typically seek
  • Vulnerability – some elderly customers will find themselves in vulnerable circumstances. How does your business support these customers whether it is due to bereavement, hospitalisation, long-term care or mental capacity issues (perhaps linked to dementia). For more on this please see Huntswood’s white paper on vulnerability
  • Advice / Guidance – the FCA states that “the availability of accessible generic information and guidance are going to be essential”. This will mean delivering the benefits of effective financial planning becomes ever-more imperative. The challenge is that providing more information alone will not deliver flexible later life planning and good outcomes. The aim should be to make advice provision more sustainable for the business, and better value for customers.
  • Product design – greater innovation in product design is required to ensure products are appropriate and flexible enough for  vulnerable customers

At the same time, the FCA and other financial services regulators will move to modify their regulatory approach and balance innovation with consumer protection, so watch out for news on this front.

There is, of course, more to come from the FCA in this area as they move towards drawing their conclusions in 2017, however, some of the prevalent issues have been made clear in this latest discussion paper. It’s safe to say that firms considering their approach to the points above can put themselves in an advantageous position, such that the transition to new rules has minimal resource and cost implications for their business.

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