View more on these topics

Age UK’s Tom Wright on making sure the pension system does not fail the elderly

From financial exclusion to inflexible products and a pension system that is too complex, Age UK chief executive says action needs to be taken to ensure people are better prepared for retirement.

Tom-Wright-Outside-700.jpg

Age UK chief executive Tom Wright is very concerned about the financial readiness of older people.

“Fundamentally people are coming in to retirement with insufficient pension savings and an under estimation both of their longevity and of some of the costs that they might face in later life, such as care,” says Wright.

To help tackle the problem late last year, the charity set up a financial services commission, in partnership with the Chartered Insurance Institute, to investigate the main problems with financial services for older people and produce recommendations of how the industry and regulation can be improved to help the people it is supposed to serve.

Earlier this month, the organisation held the second of three summits to investigate the problems and the commission plans to produce a report, including recommendations of what action to take, on 25 June this year.

Wright says it currently provides information and advice to around six million people across of range of issues ranging from health and  well being, helping people with benefits, providing information on pension and savings.

Age UK is an organisation that has to be taken seriously when it starts talking about issues for older people and with a little over a year to go until the next general election, it could find its opinions carrying even more weight than usual.

It was formed as a merger of Help the Aged and Age Concern five years ago and is one of the largest providers of information and services to older people.

Wright says it currently provides information and advice to around six million people across of range of issues ranging from health and  well being, helping people with benefits, providing information on pension and savings.

He says the commission is a reaction to what Age UK is hearing from the people it comes into contact with every day.

“One of the reasons we are doing this is the enormous levels of frustration that we find amongst older people and because we provide information and advice to the best part of six million people in this country, we are a great barometer of some of the issues and challenges that older people face,” says Wright.

The range of issues that Age UK has on its agenda is lengthy. Reform of the state pension, the Care Bill, access to advice, the exclusion of the elderly from some financial services and the annuity market are all issues it is looking at.

Age UK has been a supporter of the introduction of the single tier state pension and has welcomed the commitment to keep the triple lock on increases to the basic state pension. However, he is dismissive of suggestions that pensioners are benefiting by having their benefits protected at a time Government spending is being curtailed, with working age benefits being particularly hard hit.

“This is a triple lock on not a very generous state pension in the first place. If people think that to protect that state pension is somehow generous I think doesn’t reflect reality, with the state pension worth somewhere in the region of £110. Compared to the level of pension in other western European countries and the cost of living and the cost of energy and housing in this country, in a way the triple lock is the minimum, just for it to keep pace, let alone grow progressively.”

Wright is a little more guarded on the increase of the state pension age. In the Autumn Statement Chancellor George Osborne announced that the state retirement age would increase at a faster rate than previously planned and should reach 68 by the mid-2030s.

He concedes the pressure on the Government to make it affordable in the long-term but says any increases in the state pension age disadvantage the poorest in society.

“We appreciate the current retirement age was put in place when most people never reached it. Now by far the majority live well beyond it and society has to adapt.

“What worries us is it might affect vulnerable older people the most, who perhaps lose their job in their 50s or 60s. People who have care commitments, something which is increasingly common, because people’s parents are living longer. It is not unusual for people in their 60s of 70s to be caring for people in their 90s or 100s.”

Wright says the introduction of the single tier state pension and auto-enrolment are both steps in the right direction but he warns that both reforms will take many years to really have an effect and people in or approaching retirement now will not see any benefit of the changes.

“There is an immediacy to the problems. The single state pension will only benefit future pensioners, and not current pensioners.

“Auto-enrolment is starting at a relatively low enrolment level and then starts to scale up and it will take decades. It is only now in Australia and New Zealand that they are beginning to see the benefits of what they put in place many decades ago.”

The first summit, held in December, looked at issues for those people in their 50s and 60s and approaching retirement. This month’s summit tackled the recently retired, and the third and final summit, held next month, will look at issues for the over 85s.

In some ways, Wright appears to be most concerned with the fate of the over 85s most. He says problems such as pensioner poverty and the systematic exclusion of older people from financial services are common place and deeply entrenched problems.

He is also slightly puzzled by the exclusion of many older people from financial services, with some companies refusing to deal with customers who are over a pre-determined age.

“One slightly senses there is an artificial age barrier that some financial services providers have got in their minds, after which they somehow feel they are not ordinary customers, they are customers that do not fit in to their regulatory and other models.

“Clearly that is not the right attitude to take – first because those aged over 85 is the fastest growing part of the population but also the majority of financial services are bought by older people. Eighty per cent of life company investment bond customers, 74 per cent of equity Isa customers, 67 per cent of all savings and investments sit with older people.
 Yet many providers are excluding themselves from where the wealth is.”

Wright says it is perfectly possible for companies to continue to service this section of the population and points to Age UK’s own commercial operations as an example of how that is possible. In fact, since the RDR and the increasing difficulty many less affluent people will have getting access to advice, means this should present interesting opportunities for the organization.

Wright says they already have 1.3 million financial services and energy customers with scope to grow this significantly.

“We specialise in financial services with no upper age limits, and indeed we have 1,400 customers aged over 100 in our financial services and energy division, including travel and general insurance.

“Already we enjoy a specialism in later life and that is the fastest growing part of the sector, the 85 plus.”

He says simple products, with no adds on or complicated terms backed by good customer service is what this segment of the population want.

“There is a big market and a big opportunity out there and a gap between IFAs, perhaps focusing on those with stronger incomes, and complementing the basic advice which is out there.”

Age UK has a commercial arm which includes annuities and equity release amongst the products offered. Wright says he is strongly in favour of people shopping around for annuities but says this can be difficult to do commercially for financial advisers, and sees this area where organisations such as Age UK have a big role to play.

“We do support the introduction of a compulsory code of practice for annuity providers, which to be fair is one of the things the ABI is pushing for.

“If you think the average annuitant is buying with a £25,000 pot, is that an area where IFAs are going to focus on? We particularly focus on annuitisiong small pots ourselves, and we go down to £5,000 or less.

Long-term care is another issue for the oldest section of the population. That this is cropping up in the financial services summits should not be a surprise, as Wright says 50 per cent of people will incur some sort of care costs in their lifetime.

Wright says the Care Bill represents progress but the cost of care is acting as huge deterrent for people to save: “The position on care is still quite complicated. It is progress – because we didn’t have it before – but there is a long way to go before it is clear and easy for people to understand and actionable.

Tom-Wright-2014-700.jpg

And although only a small number of people will be affected by the care cap it has a much wider influence in people’s saving habits.

“Over three million people disinclined to save and invest because they think their savings will be used to pay for their care.”

Although Wright says Age UK is keen not to pre-empt the full financial services commission report by putting new policies in place before then, he says there are some areas that obviously need attention.

One is more innovation to help develop more flexible for retirement products, such as annuities and equity release.

Earlier this year pensions Minister Steve Webb suggested the development of transferable annuities to allow pensioners to switch to another provider to take advantage of better rates. Wright also cites markets such as the US where the market has developed deferred annuities.

“There was quite an interesting recent debate about different types of annuities and things like disability related annuities or in the US where they have things like deferred annuities, which can be part of your pension contributions. So we welcome the debate about more flexible products.

“There should be a more formal process of ensuring that people get the best annuity quoted.”

Going hand in hand with better products is the need for better levels of trust between customers and financial services providers.

“it is also about having better financial solutions and financial products that allow people to plan better and have trust in them. That is a governmental challenge as well as financial services challenge.”

With life expectancy continuing to increase Wright says perhaps the biggest challenge is changing the financial services and the general populations attitudes and preconceptions about age and longevity.

“The UK has some of the longest lifespans in the world. What we are seeing is the fastest growing populations in the world are 85 plus, or even 100 plus.

“As a generality we all underestimate our longevity and so we under-prepare for it and many financial services are not then designed for that longevity or reflect the demands and needs of a changing population.”

This lack of preparation has a real impact on people’s lives and are often only recognized when it is too late to do much about it.

“We know how distressed people are with many of the financial challenges that they face
 and we know that affects the health and well being and general quality of later life.

I” think we need to do more, otherwise will have a growing problem. The single tier state pension, auto-enrolment, these will take decades to feed through and meanwhile we have a massive impending challenge.

“We know there are some quick wins, like much better annuitisation, for example, much better support, information and advice on benefit provision. There is billions of unclaimed benefits which would also help people in later life.”

With pensions and long-term care reform currently on the political agenda and an election around the corner, Wright appears to sense the opportunity to change the current system.

He says his aims for the year are quite straightforward.

“To raise the game of the financial services industry and indeed the government, to take stronger actions around preparing people coming in to retirement and those in retirement to have better and more secure financial provision. That is really where our focus is in 2014, to address how poorly prepared society is for an ageing population,” says Wright.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Prior to leaving the UK I supported AgeUK and now living in Canada with my state pension frozen along with that of 550,000 others worldwide feel that AgeUK could be more forceful and vocal in support of the frozen pensioners. With an effectively ever decreasing pension it is not possible to support charities and other organisations . With the inclusion of clause 20 in the new Pensions Bill which copies the existing regulation3 to continue to deprive qualified pensioners of their indexing is just so obviously immoral and discriminative that even parliament recognises it as being so, but still fail to observe any equality or human rights of a pensioner purely on the basis of where they live. Please be more forceful in bringing this acknowledged anomaly to an end and let us live without the anguish and mental punishment of wondering if we can afford to pay our bills next month. If the government are serious about the Charter of the Commonwealth (where most live) not to mention the other agreements signed to do away with discrimination and poverty then this must addressed now and bring the UK into the 21st century along with the rest of the civilised and democratic world.

  2. Mr Wright, when you say “This is a triple lock on not a very generous state pension in the first place. If people think that to protect that state pension is somehow generous I think doesn’t reflect reality, with the state pension worth somewhere in the region of £110.”
    Reality for my wife me is a British state pension frozen at half of that £110, with no increases for as long as we breathe air!
    We contributed to National Insurance as much as our next door neighbours while we were working, but when we decided to join our children and grandchildren abroad, we find we get penalized and discriminated against because of where we now choose to live.
    Can you imagine a private insurance company saying they’ll pay a pension in Sussex but not in Yorkshire? What’s the difference?
    This cruel pension policy that perpetuates this shameful discrimination is not justifiable or economical. There are so many arguments against it you could write a book. There are absolutely none for it. If there were, Steve Webb would have used them instead of the farce that was called a Committee Stage for Clause 20 the new Pension Bill – the Clause that allows our punishment to continue.
    As David Cameron recently said “We are a wealthy country” then he can afford to pay my wife and I the pension that we both paid for!!

Leave a comment