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Financial Services Marketing to the Retired and Elderly Market Assessment
Key Note Publications Ltd, January 2000
Wealth Concentrated Among the Over-50s
The over-50s in the UK hold 80% of all wealth and 60% of all savings. The over-65s are more likely to own financial products than the population at large. More than a quarter of men over 65 own stocks and shares, as do a fifth of women over 65. More of them invested in PEPs and Tessas than did the population overall. They are twice as likely to own National Savings as their younger fellows. Nine in every 10 men over 65 are "included" in the world of financial services, and so are nearly nine in 10 women. The elderly are at the heart of expansion in financial services.
Rapid Rise in Numbers OverThe rise of the older generation has been rapid. In 1961 there were 2.1 million over-75s in the UK, and in 2001 there should be well over 4 million. The elderly are more likely than the working population to be asset rich and income poor, because earnings peak at age 30 to 49. The much lower average incomes for people of pensionable age reflect the dominance of women in these age groups, as a result of their longer life-expectancy. Women are less likely than men to belong to a pension scheme, occupational or personal, and in consequence are greatly more dependent on the basic state pension.
UK Companies Slow Off The Mark
UK companies have been rather slow off the mark to meet the growing demand for products geared to the over-50s. Subsidiaries of American, Australian, French and German companies already have very strong presence, especially in over-50 life insurance and equity release markets.
GE Life, subsidiary of General Electric of the US, and NPI, part of the AMP group of Australia, are both important in equity release. Cornhill, owned by Allianz of Germany, and France's AXA, are big names in life insurance for the over-50s. National Savings and the Post Office remain very important providers of financial services to the retired. Saga Services focuses on general insurance for the over-50s, and also offers investments in conjunction with banks and stockbrokers.
Prudential is the market leader in annuities. In the UK, only insurance companies are allowed to sell annuities. Banks need to acquire insurers, or set up joint ventures, if they are to get involved. Lloyds TSB, for example, has the long term insurer Scottish Widows in its stable now, and Royal Bank of Scotland has a joint venture with Cgnu. Hsbc offers annuities in co-operation with Hanover Re.
Confusion Fogs the Market
Our National Opinion Poll (NOP) survey found that the over-65s are confused both by financial products and the ways they are marketed. This mental fog restricts the market and hinders potential customers from making the most appropriate decisions.
The survey also found that three-quarters of the over-65s would not go on to buy a financial product without a face-to-face meeting with a real person an independent adviser, a company employee or agent. Direct distribution can only go so far: the industry will have to work through independent financial advisers (IFAs), as the powerful Cgnu, Royal and Sun Alliance and others have already decided.
Only a third of over-55s are confident that financial service companies are properly regulated, and this is another problem for companies - and the Financial Services Agency - to overcome. IFAs need to do more marketing of their own, because little more than half the sample say they trust IFAs to give unbiased advice.
The research indicates that there is still significant potential for expansion in the market for financial services for the elderly, because at present it is constrained by confusion. The extent of confusion about financial services has risen since 1997. It affects all age groups, and is at a high level among the older population. Women admit to confusion about financial products and their marketing more than men do. All this suggests that companies must work harder at basic financial education, as well as at simplifying their marketing messages.
Companies will pay more attention to the clarity and simplicity of products for the elderly, such as guaranteed insurance and equity release, both of which have strong growth prospects. Norwich Union (in Cgnu), Northern Rock and Saga are three domestic organisations to study the "elderly market" in depth, but many UK companies need a wake-up call. Direct mail will have to be clearer and easier to read - without a mass of small print - if it is to be used more effectively, and companies will need to work harder at public education about personal finance.