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Friday, March 07, 2014

The financial wellbeing of older people - my concerns

Yesterday I had the pleasure of being a panel member at a conference in London that presented new research into the finances of older people - Financial Wellbeing in later life. Evidence and Policy.

This was based on a joint project between PFRC and ILC-UK.

The report of the research has now been published.

I thought it might be useful to blog about the main points I made in my response. I am going to make the assumption you have read the report.

First things first - well done to both PFRC and ILC-UK. A really good contribution to our knowledge about older people.

It was terrific to see more evidence to highlight the puerile way that both the right and left of the political spectrum attack the supposed financial wellbeing of the older demographic. This report shows that it is far more complex than the 'burn the bus pass' advocates would have you believe. Not that I expect for one instant that it will stop them positioning older people as a pampeedr and selfish group. OK, rant over!

I have some big concerns, not about the research, but about how it might be interpreted. By its very nature this type of project is looking in the rear mirror at what has happened. That is not a criticism it is statement of fact.

What the project could not have covered is the impact of the recession and it is supposed economic 'cure' (i.e. artificially holding of interest rates at record low levels).  We have just passed the 5th year and I think we might have a very long wait before they rise to anything like sensible levels.

What has this policy done? It has caused significant financial problems for those reaching retirement and to a lesser extent those in retirement. Half a percent interest on savings in an era of highish inflation is bad - but it is terrible when you look at what it has done to the value of annuities.

Bottom line. The financial plight of a significant number of older people (probably the majority) is far worse than this research suggests.

The effect of QE has been to exacerbate the differences between the wealthier and low/middle income older person. Why? The flood of money being printed has boosted the stock market that has disproportionally benefited the wealthy - the same flood of money has diminished the returns to the poor.

It is strange when so much concern is expressed about inequality that the foundation of economic policy in the UK and the US is based on something that drives the gap between rich and poor.

I have an even bigger concern than the result of QE  and that is that the housing wealth of older people is being perceived as 'nest egg' both by the person themselves and more worrying the government. A golden goose that is going to fund both the period between stopping work and needing care services and then funding of those care services. My hunch is that housing wealth is being double counted! OK, the individual can be forgiven but not the policy makers.

Another concern - not sure where this comes in the hierarchy - is that policy makers have no idea about the way pensions will be funded. Are we (collectively as a country) saving enough - answer no. Are we contributing enough into our pensions - answer no. Now here is the big question - are we earning enough to be able to do one or both of these things. Answer - nobody has a clue.

And now, a couple of comments about the research and business.

Should it make a difference the way companies deal with older consumers. Yes. Will it. Almost certainly not.

There have been lots of jolly good segmentation studies done in the past but rarely do companies use these insights to drive their marketing. A sad fact but true.

The single biggest financial opportunity that exists at the moment is to help older people use their property wealth to live something like a half decent life. The need for this is going to grow and grow.

Right now in the UK the value of the equity release business is around £1 Billion. This is trivial compared with the amount of property wealth and the pent up demand. So watch this space. If a financial service company is not looking at how to become part of the mechanism to release property wealth then they should. Dick Stroud

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