Ageing population: update from the FCA

We all rely upon the financial system to help us meet even our most basic needs, such as paying bills, or receiving pension income, and it is imperative that all consumers, including older consumers, are able to access the services they need, with adequate protections in place for when things go wrong. Indeed, as retirement can now last three decades or more, and any individual’s needs can change significantly as they age, it is crucial that services offered to older consumers are flexible over time.

Moreover, shifts in demography mean traditional concepts of retirement are changing. Products and services will need to adapt to meet the needs of an ageing population. Demographic change offers a range of opportunities and challenges that both the industry and regulators need to address for the future. Good outcomes for older consumers will come only from collaborative action, and the FCA’s Ageing Population Strategy is intended to help shape and encourage change in financial markets.

We launched our work on the ageing population in February 2016 with a Discussion Paper[1] which included contributions from a range of interested individuals and organisations. We offered stakeholders the opportunity to engage with the FCA on issues affecting older consumers, and have developed our programme of work based on the many responses we have received, combined with our own analysis of current regulatory priorities.

Since launching this programme of work in February 2016, we have come across some encouraging examples from firms who are committed to adapting and innovating their products and services design and delivery, to meet a number of the challenges associated with ageing. However, there is certainly more that can be done to address the issues as they emerge and develop. Products and services that work well for older consumers are also likely to provide benefits for other consumer groups and for society at large.

Since the launch of the project, we have analysed responses to our Discussion Paper[1] and designed a work programme that looks holistically at the everyday issues facing older consumers as they engage with financial services. We received over 50 written responses to the Discussion Paper and have met interested stakeholders. This has really helped us to understand the breadth of issues facing older consumers across financial sectors. In addition, we have been encouraged to learn more about the wide range of initiatives already underway within  firms, other authorities, the third sector, and proactive work led by professional and trade bodies. We look to join up with these proposals where there is overlap, and support independent initiatives where there is alignment.

In addition to supporting the work of others, we have developed a programme of work for the FCA. Our work will focus on the areas where we believe that we can contribute most towards positive change for older consumers. We will deliver it alongside our existing initiatives which are improving outcomes for this cohort, such as our work on access[2] and vulnerability[3]. We recognise that the FCA can only ever be part of the solution to the issues we see in these markets and will look to others to support this important work. Delivering positive, lasting change for older people has to be a collaborative effort, and we will take this forward with interested parties.

Ageing population work plan

It is well established that those aged 85 and over represent the fastest growing segment of the UK population, and we are keen for our programme of work to touch upon the issues that are relevant for consumers in the oldest cohorts, as well as those who are preparing for or are in earlier stages of retirement. We want to ensure that financial services genuinely meet the changing needs of older people, at every stage of later life.

Many responding to our Discussion Paper talked about the ways regulators can nudge disengaged consumers into better outcomes, and we know that older consumers sometimes struggle to use mainstream banking channels. So we want to explore areas where we can work together with stakeholders to turn these ideas into action that can work in practice for the benefit of our ageing population.

We are also looking at existing academic research, in order to understand more about how the mind ages, and to identify how this may affect consumers in their interactions with financial services. We want this research to help firms identify the practical steps they can take to improve the experiences of older consumers and deliver better customer outcomes.

We are aware that some products have age limits, some of which we outlined in more detail in our recent FCA Occasional Paper on access[3]. We intend to look in more detail at markets that restrict access based on age, and explore whether voluntary initiatives on transparency and signposting may help consumers to understand the options are open to them at every age. We will also consider whether we need to do more to ensure the markets for these services work well.

Older consumers have a different asset profile to the rest of the UK population, and are currently more likely than younger consumers to be asset-rich and cash-poor, which raises issues about how older consumers can make the most of their overall wealth. Building on our Call for Inputs on mortgages[4], we are looking at whether there are barriers to innovation in mortgage products that might address some of these issues. We are encouraged to see firms thinking innovatively, with the intention of better serving the needs of older people, evidenced by some recent product developments. We are keen to explore whether there is more to be done to help consumers make the most of their resources for their whole retirement.

In our Discussion Paper, we were pleased to see a number of contributors cite previous FCA work, in particular on consumer vulnerability. Our ageing population work intends to go further and consider how best to protect older people in vulnerable circumstances, including those who require assistance from a third party when managing their finances. A number of responses also mentioned the complexity of decisions that consumers face if they, or somebody close to them, needs to enter long-term care. We are doing some discovery work to assess whether there is a role for the FCA in the way advice and information is delivered to consumers about their options for funding this significant expense.

Making markets work well for older consumers

At the FCA, we have a wide range of projects and teams looking at issues relevant to the ageing population. We are taking forward many of the issues stakeholders raised through other FCA initiatives as set out in our Business Plan, and summarised below. For more details on our focus, please see this year’s Business Plan[5].

Pensions

A number of responses highlighted the ongoing changes in the pensions market and the many significant changes in pensions are a priority for us. The recent pension freedoms, for example, open up a range of options for consumers beyond annuities – consumers may increasingly be searching for retirement income options that offer flexibility, but with the safeguards appropriate for their needs. This is especially important given the range of uncertainties that any consumer will be met with in retirement, including uncertainty about their own longevity, that of their partner, and the potential future costs of care.

Pensions markets are still adapting to the many recent changes and the FCA is looking across the pensions sector to ensure that older consumers are treated fairly and competition works well in these markets.

Advice and guidance

With freedom and choice, comes an element of risk and uncertainty, and some of those responding to the Discussion Paper mentioned the role of advice or guidance in encouraging consumers towards good outcomes. Some commented on whether there was a need to improve basic financial capability and budgeting skills in older cohorts.

The Financial Advice Market Review[6] was a joint initiative between the FCA and the Treasury, and looked at the barriers to consumers accessing advice and guidance, with a focus on investments, pensions and protection. It made a number of recommendations to tackle these barriers including the creation of a new dedicated Advice Unit[7], which we have now established as part of Project Innovate[8]. The Advice Unit will work with industry to provide regulatory feedback on automated advice models. The Government’s Consultation on Public Financial Guidance[9] is underway, and we look forward to working together to improve the landscape for those making use of guidance services, including the Money Advice Service and subsequent bodies.

Mortgages

Lending to older borrowers is one of the areas that we will be considering in more detail over the course of the next year, where relevant drawing on the Responsible Lending Review[10] and our work on competition in the mortgage sector.

Vulnerability

Many of the responses to our Discussion Paper made reference to the FCA’s ongoing work on consumer vulnerability, and we note that several stakeholders have since launched their own initiatives on this topic. There is great progress in this area, and we are really pleased to see a high level of involvement on this important issue.

Clearly, not all older consumers are vulnerable, and all consumers can become vulnerable at any stage in their life. This being said, some of the conditions associated with ageing, such as mobility or dexterity, mean that there is an area of overlap between work on vulnerability and the ageing population. Further, we know that some of the issues relevant for older consumers have important and useful lessons for other groups, as the same protection or policy may be appropriate to safeguard a wide range of consumers.

To take this issue forward, we will work with other parties, such as trade bodies, to understand whether more can be done to improve outcomes for vulnerable consumers, over and above the initiatives already underway across financial services markets.

Access

We have recently conducted a large-scale programme of work to explore consumer experiences of financial exclusion, which included independent research. This culminated in us publishing Occasional Paper No. 17: Access to Financial Service[11]s[5] in the UK in May 2016. This paper brings together a range of issues for debate to stimulate a culture of inclusion across retail financial services. Some of its recommendations overlap with issues that are prevalent for older consumers.

Notably, this research highlights the role for the mortgage market to adapt and allow older consumers to access a range of lending options, including releasing wealth from their home if this is the best option for them.  We are further scoping the challenge laid down within the Access paper to encourage ‘Clear explanations if turned down and signposting to other lenders or options’ as part of our programme of work, and will be assessing whether more can be done to promote innovation and information provision to older consumers.

Scams / fraud

Evidence shows that older consumers are often most at risk of scams and fraud. In addition to our ongoing work in preventing scams and fraudulent behaviour in financial markets, we have launched the ScamSmart campaign to increase consumer awareness of investment fraud and the actions people can take to avoid it. The ScamSmart campaign is targeted specifically at older consumers, as our consumer research shows that these cohorts are most susceptible to investment fraud and scams.

The ScamSmart website[11] gives consumers tips on how to spot the techniques used by fraudsters and hosts the FCA Warning List, a list of firms and individuals that the FCA knows are operating without its authorisation. Since ScamSmart[15] first launched in October 2014, we have reached over 3m at-risk consumers, over 350,000 people have visited the campaign website and more than 30,000 have checked an investment on our Warning List.

Financial crime and anti-money laundering is one of our priorities in 2016/17. As part of our ongoing work in this space we will be working with relevant authorities, including law enforcement, with the aim of increasing consumer awareness and reducing the harm caused by investment scams.

Smarter Consumer Communications

In June 2015 we launched our Smarter Consumer Communications[12] initiative to encourage firms to consider innovative ways of communicating with consumers and improve the quality of information consumers receive. We know that that the way in which information is presented and delivered can have a significant impact on consumers’ ability to make informed decisions when buying financial products.

Digital communications are growing in importance and consumers expect firms to take into account their preferences when engaging with them. Our initiative supports and encourages the use of new technologies to present information in a way that interests and engages consumers.

Our Discussion Paper[17] identifies several areas where the industry could do more to improve communications. Firms have shared examples with us where they sought to take innovative approaches to communication with consumers, including vulnerable groups and older customers.

We aim to publish a Feedback Statement in the Autumn in order to outline the feedback we received in the responses to the Smarter Consumer Communications Discussion Paper[13] and explain our next steps.

Next steps

We will launch the FCA’s Ageing Population Strategy in Summer 2017. To develop the Strategy, we will continue to gather input from our stakeholders through a combination of bilateral meetings, and roundtables on key issues. During this period, we will focus on making markets work better for older consumers through a combination of collaborative action, reviewing our own regulations and practices, and dedicated analysis of the areas outlined above.

As shown in our recent Discussion Paper, we feel there is clearly a willingness to work together. If you have further comments and would like to get in touch with the team, email [email protected]