A recent Financial Services Forum event posed the question, ‘where does financial services need to try harder’? Attendees debated whether the financial services industry has managed to reach and engage Millennials (gen Y) and whether it has forgotten the over 70s.
My overall sense was that that there was agreement that in recent years over-70s have been side-lined due to an increased focus on millennials and a focus on the products and services offered by ‘trendy, snazzy, shiny’ fintech companies clearly aimed at a younger generation.
So why has there been a shift from the over 70s to the millennials at a time when their collective total net wealth doubled. From 2006-16 the total net wealth doubled for the over 65’s, concurrently however, whilst that of millennials only increased by 9%.
As the levels of wealth continues to increase for this generation, the responsibility of preserving this and funding retirement has shifted away from the State to individuals. For Millennials, the prospect of having to provide for their future is understandably quite daunting. Unlike many over 70s they are not fortunate enough to have clocked up Defined Benefit pensions on top of their State pension, instead it’s up to them to fund their retirement.
It has been said that Generation X, those born between 1961 and 1981, have been dealt the best hand. I’m not sure I necessarily agree, but that is for another day. Despite the emerging rhetoric that the over-70’s have been abandoned from a pensions and lifetime savings policy perspective, with the right support their wealth can be passed down through the generations, including to generations X and Y. Whilst there has been much discussion of the role of the Bank of Mum and Dad, it’s important to recognise the crucial and growing role of the Bank of Gran and Grandad .
So what are the options for people considering long-terms savings? Ironically, the strategy appears to be to implore people to invest into a product with limited choice. Let’s take auto-enrolment as an example. It has been praised as a great pension saving tool which has got many more people now automatically contributing to their workplace pension. However, there is one or two flaws. First, you get lumped with a provider that you didn’t choose and may not be best suited to your own financial needs. In a company of 500 staff, it is highly unlikely that one pension provider will be suitable for everyone. Second, we don’t yet know the outcome of auto-enrolment as no one has yet retired on it and tried to live off the funds. Therefore, we are non-the-wiser as to if it’s a success until savings are being distributed, and even then, it is unlikely people will have enough in the kitty to last the full distance of their retirement.
Essentially, the pensions system is outdated for the modern worker. The introduction of a Lifetime ISA has had limited take-up, both from providers and consumers, further highlighting that we are lacking a healthy challenge to the status quo.
Another area where the over-70s are being ignored is in the provision of innovative products and the way to engage with them through financial technology. Fintech has been a game changer in the financial services sector, but it cannot come at the expense of the actual product.
One of the criticisms of fintech has been that it risks not including everyone. Financial inclusion is so important, but the risk is that technology can leave some people behind, leaving them feeling isolated and disincentivised. For example, as we move rapidly towards a cashless society some older people and those without bank accounts who are unable to download the latest App and manage their money on-the-go risk being excluded.
Another concern raised by older people has been the lack of interaction and empathy forced upon them by the greater use of technology. For some people a regular trip to the bank to pay a deposit was a welcome opportunity for a chat.
However, so much focus has been placed on Millennials in recent years that the over-70s, a generation with the greatest concentration of wealth, are having to make complex decisions with little help unless they are able and willing to pay for financial advice. Given the statistic that as little as ‘one in five of us will seek an adviser’, that’s a lot of people having to work things out on their own, risking people making some of their most important financial decisions based on emotion rather than evidence.
So rather than focus on the generation at the greatest relative disadvantage, we do our upmost to appeal to all, as opposed to focusing on one or the other with products that are most appropriate to each group and allows them to access services and advice in the easiest possible way. That is the only way we will rebuild trust in financial services and minimise the retirement timebomb.