Over the last couple of years, the Building Societies Association (BSA) has been thinking about how best to respond to the needs of an ageing population. At its heart, the challenge is: how do we, as financial services firms, ensure that the needs of older customers are considered in every part of the business? Building societies are customer owned and exist for the very purpose of serving their customers’ needs throughout every stage of their lives.
As part of our work on this topic we contributed a chapter to the FCA's Discussion Paper on the Ageing population, that was published on 22 February. A paper that is a great start to a broader debate. Read on for our submission:
How can firms adapt to meet the needs of an ageing population?
Last November we published our interim report Lending into Retirement and committed to taking a range of actions. Some are simple, almost self-evident. We need to make sure that older customers are empowered with the information they need to make decisions about their finances. If you look at any major lenders’ website you will find consumer guides aimed at first-time buyers. Financial services does not become less complicated as you get older, in fact with all of the recent changes to pensions, the way we live our lives and the fact that retirement is increasingly a process rather than an event it can become increasingly complex.
Secondly, firms should consider having someone at a senior management level who is a strong advocate for the needs of older customers. This ‘Older Persons Champion’ should think about whether every part of the business is geared to serve older customers. Are there appropriate communication channels in place? Are staff trained on how to interact with customers with differing needs in later life? Are they aware of the existence of Lasting Powers of Attorney? Are product portfolios appropriate in meeting the needs of older customers?
Perhaps naturally, much of the recent focus in the media has been on the mortgage market. The last thing we want is for credit-worthy customers to be locked out of the mortgage market on account of their age. That is why every building society has committed to review its maximum age policy.
Some age policies might stay the same, some might move up and some might go altogether. Of course, that depends on any particular lender’s expertise, risk appetite, systems, processes, and knowledge of the market. But let’s imagine for a second that the entire mortgage industry decided to do away with maximum age limits. What would firms in the mortgage sector look like?
Immediately we might think that this could blur the boundaries between a traditional mortgage and a lifetime mortgage. That is a fair challenge, if a mortgage term extends beyond a borrower’s expected lifespan then implicitly it is expected that the capital will be recovered from the borrower’s estate. With a traditional mortgage the lender, and the regulator, expects the capital to be paid back at the end of the term.
It is right that in some cases the family is consulted if possible, and legal advice is often sought in the lifetime mortgage sector for a reason. Should we legitimately expect that the borrower should go through the same process as for the lifetime mortgage industry?
Building societies have led the way in championing lending to older borrowers to provide mortgages that are appropriate for consumers irrespective of their stage in life, but more needs to be done. We need to assess the regulatory regime alongside the demographic changes that we face to ensure it remains fit for purpose. The conversation needs to move on from what firms feel regulation may prevent. Instead regulators and industry alike should focus on the potential risks with lending to older borrowers and how firms can best mitigate them.
We often hear that a borrower in retirement with a Defined Benefit pension or one who has bought an annuity is quite a safe credit risk. They have a certain income for life – as opposed to someone of working age who might lose their job.
Although the fact is that Defined Benefit pensions are rapidly heading the way of the dodo, and assessing income as people approach retirement or are in retirement will become increasingly challenging. Many borrowers are approaching retirement with less pension wealth than they anticipated. For borrowers further away from retirement we have no guarantees they will continue to pay in, or that their investments will perform as they expect, or that they won’t draw out a lump sum at the age of 55. We may also be reaching a peak of pension wealth, a trough is expected before the benefits of auto-enrolment for Defined Contribution pensions start to make an impact.
There is a need for different industries to work together to address the challenges. There could well be a role for lenders, insurers and/or pension providers to get together to design the retirement mortgages of the future, and this Discussion Paper is a great start.
It should be recognised that product innovation and regulatory change will not address all of the challenges facing society. Some small, practical changes can make a huge difference to people’s lives.
Retirement is increasingly a process rather than an event; people retire from work, they do not retire from life. Older people or retirees are not a homogenous group, their needs vary as much as at any life stage. If a person is fit and well they will want access to the same suite of financial services products as anybody else. If a person is in deteriorating health, either mentally or physically, then they need to be able to access their finances in an appropriate manner without feeling that they are a burden on their family.
Our members know that people want to interact in different ways. Some people want to interact electronically; others are not so e-savvy. It would be wrong to assume that in the future older customers will be less likely to interact using digital media, many currently do so, and as time goes on it will become the norm for many people. That said, it is also important to recognise that people do have different needs. Some of our members have been providing home visits to those that have difficulty getting out of their homes, we have one member that provides a drive-through branch, because the many of their customers are elderly, cannot walk very far, but are car drivers.
Some branches are moving to lower counters, often with stools or seats, so that customers that cannot walk very far can sit down while they are transacting because it makes it more comfortable, and they can maintain their independence.
A mix of solutions is needed to meet the challenges our changing demographic presents. We need to come together to address these challenges now before we risk certain customer segments finding difficulty accessing the financial services that they need.