The typical retiree of the past does not exist. That mythical being who is heading into retirement with a guaranteed final salary pension scheme, a mortgage (and other debts) that is largely paid off, and dependent children long gone, is simply not the reality any longer. Working life for many does come to a hard stop, the mortgage payments still come out month after month and the kids often remain in the nest, if not physically then financially.
The position in which those approaching retirement varies across socio-economic class, gender, race but the one constant is change. One consequence of longevity: the levels of indebtedness of this demographic is growing and many are still active borrowers. “For decades, financial planners and personal finance gurus helping Americans prepare for their later years have relied on a relatively standard lifecycle model…built on 20th- century economic structures,” according to a recent CFSI report examining the financial journey of the Over 55s.
In the UK, the Over 55s constitute an increasing portion of home ownership and hold 69% of the housing equity. Concurrent to that is an increase in the total amount of mortgage debt held by that demographic.
This market will experience rapid growth over the next decade. Later life lending products are thought likely to reach 25% of the total mortgage market, or £60bn to £65bn per annum by the end of 2027.
There has been some interest in this customer segment. The FCA is encouraging innovation in this area and attempting to clarify some of the regulatory concerns of lenders. Some providers have started to update policies to increase, for example, the upper age limits for borrowers. However, there are a number of barriers to further innovation in this space that need to be addressed.
A good starting point is to think more holistically about the needs of this market. Many older consumers, for example, want to help their children or grandchildren financially, e.g. supporting the purchase of a home. Often, they are using funds taken from pensions or drawing down on their home equity to do so. There is room for some fresh thinking and the creation of multi-generational financial products to enable the transfer of wealth more effectively.
This holistic thinking moves away from product driven approaches. It encompasses a view on how to serve the Over 55s on their life journey. A consideration of how to best prepare for life events – illness, diminished capacity, a need to fund care – could help ameliorate some of that risks lenders to older consumers are concerned with as well as deliver great value to consumers and their families. The need for updated and more fulsome financial advice is still a yawning gap that needs to be bridged.
In addition to so-called risks, there are more positive life opportunities to consider such as new careers, entrepreneurism, travel, as this generation continues to re-define and break down stereotypes.
Where there is an under or poorly served market means there is an opportunity built on better understanding and technology that should attract would be innovators. Later in life lending is both getting later and larger and will be a topic discussed at the upcoming FinTECH4Life conference and beyond.