The FCA has called on the financial services industry to do more to respond to the needs of an ageing population, finding that product and advice gaps exist in the current landscape. The Occasional Paper (OP) 'Financial Services and an Ageing Population' highlights good practice and discusses difficult issues without reaching many firm conclusions.
The OP is more of a 'carrot', allowing firms to benchmark against good examples and decide their own strategy. Though there may be a potential 'stick' in the offing with the FCA stating that a more comprehensive review may come in three to five years' time if things do not improve incrementally.
One issue the regulator has decided to act upon is 'retirement interest-only mortgages' – what I like to call RIO mortgages for short (with the visions of retirees relaxing on Copacabana beach that the term conjures up).
The Consultation Paper (CP) is suggesting these mortgages be brought out of the lifetime mortgage definition. Understandably, as the risks are very different. RIO mortgages, the CP states, 'do not feature the roll-up of interest, meaning that consumers are not at risk of rapid equity erosion and the subsequent reduction of funds available for a bequest.'
The BSA has welcomed these proposals. For customers meeting affordability through a guaranteed pension, for example, these mortgages offer a great solution. While they may not have another capital repayment vehicle, many customers are comfortable with the capital being recovered on death or if they move into care. We know this because a couple of societies already offer them – and I received a number of enquiries from customers after commenting on the CP in the trade press. Surely, other building societies will be reading the CP with interest.
We do have some questions for the FCA – for example, around the advice standard for selling RIO mortgages, as they combine elements of the residential and lifetime framework. However, this fits neatly back into the Ageing Population OP, which suggests that 'industry could encourage and help advisers to expand their services to include both residential and lifetime mortgages'. Looking at another recommendation, it also ticks the box of lenders 'reflecting on current policies and customer proposition, through an older consumer lens' – something a recent CBI Survey found that building societies do particularly well.
Building societies are used for good practice examples throughout the OP, including one which is intriguingly harnessing iris recognition technology for its mobile app. Less high-tech but equally as practical, another society offers grip pens and magnifying glasses in branch to make things easier for older customers.
While there is much more for societies and the regulator to do in responding to the needs of an ageing population, it is clear that the will is certainly there.
You can read the BSA's response to the FCA's 'Financial Services and an Ageing Population' here.