Britain’s financial services industry is facing some serious challenges caused by the economic impacts of the demographic changes that have occurred over the last 35 years.
For this reason, we’ve recently published a new report, called 35 cubed, in order to examine how attitudes and behaviours related to personal and household finances have changed during this time.
For example, our report has revealed that 35 year olds today tend to have higher income levels, but lower asset levels, than the 35 year olds of 1977.
These changes are mainly driven by changes in the housing market, with UK house prices trebling in real terms versus a doubling of salaries. As a result, we have seen a knock-on effect in all areas of life, and on both a family and societal level.
Changes like these raise important questions for today’s financial advisers.
In the current economic and demographic climate, the financial services industry should really be thinking about redesigning and evolving its products in this area, and asking whether 25 years is still the right length for a mortgage. As we are living and working longer, and yet buying our properties later in life, shouldn’t we be looking at how mortgages need to be adapted in order to keep pace?
Likewise, why isn’t the market offering an Isa-equivalent for protection? In today’s economic climate, advisers need to find simple, affordable ways for people to protect themselves financially – and also need to accept that protection may actually make more sense than saving in some cases.
Today’s financial advisers also need to consider how they can help people to manage a retirement process that could last more than a decade.
Our 35 cubed report has shown that people aged 18 to 44 believe that 63 is a reasonable age to enter retirement, and that 35 to 44-year-olds would like their household retirement income to be £40,000. This is only a slight difference to the expectations of the generation before.
This idealistic view has been fuelled by the retirement plans of previous generations, as people have developed an expectation that is built around what they have seen their parents do. A 35-year-old today has probably seen his or her parents go through retirement in their early 60s, since that was typically the generation that was early retired out of a final salary scheme by an employer that had a surplus in the scheme.
Needless to say, times have changed considerably since then.
Our report found that people aged 35 to 44 were not very confident about job security and have had more jobs than any other generation. At the same time, more than 230,000 people aged 35 to 44 are now out of work because of incapacity and in receipt of Employment and Support Allowance.
Even so, it’s interesting to note that today’s consumers have similar expectations to previous generations when it comes to their different financial goals and milestones – and yet we’ve seen a slow pace of change in the evolution of many of the financial products available today, especially in areas such as protection, pensions and mortgages.
Today’s financial advisers will therefore need to adopt new strategies in order to help their customers set – and achieve – financial goals that more accurately reflect the reality of the current market.
Ben Thompson is managing director at Legal & General Mortgage Club