The over-65s have tended to represent an under-exploited consumer group. However, the financial services industry is now realising that it needs to take account of the opportunities offered by this market sector.
Advances in medical science and healthcare have boosted life expectancy and resulted in a gradually ageing UK population. A recent Mintel study found there are more than 9 million over-65-year-olds living in the UK, a group making up almost 16 per cent of the total population. By 2038, forecasts suggest the over-65s will account for about a quarter of the UK population, resulting in a significant rise in the dependency ratio.
Although a large proportion of the over-65s do experience a decline in their income levels, this age group includes a disproportionately large number of wealthy individuals. Together with the high proportion of people within this age group who own their homes outright, the over-65s represent a particularly wealthy sector. As well as having high ownership rates for many savings and investment products, this group forms a good target market for other financial products, such as wealth management and inheritance-tax planning services.
The past few years have seen a sharp rise in the number of providers entering the wealth-management market and this has resulted in a lowering of the wealth barrier, with some companies accepting a minimum requirement of only &£10,000 in liquid assets.
However, financial providers will need to tailor their products to this particular market sector rather than just taking a “one size fits all” approach.
For example, the over-65s are likely to prefer face-to-face contact, suggesting that an over-emphasis on the Internet will have limited appeal to this age group. By targeting their services accordingly, providers should be able to exploit this age group’s growing need to boost their income by working their capital harder.
Mintel’s study found the vast majority of over-65s have paid off their loans in preparation for retirement and will not want to put themselves back in debt. However, while this means there is little demand for mortgages and personal loans, this age group does use a number of other financial services products.
The study also points out that although the over-65s have less need for life protection as family commitments have generally decreased by this stage, penetration rates do remain fairly high. More than half of the over-65s hold some form of life protection, with the most popular policies being those which pay out on death only, often bought to provide for funeral expenses.
General insurance products also have relatively high ownership rates among the over-65s, with household the most commonly held insurance product. Penetration rates for travel and motor insurance start to decline rapidly among the over-75s, although ownership rates for the 65to 74-year-olds are broadly in line with the population at large.
Reassuringly, the Mintel research also finds a large majority of the over-65s are living perfectly well on their income. About three-quarters of people within this age bracket have managed to provide for a comfortable retirement.
Nevertheless, the research does highlight how a fifth of respondents who own their homes outright find it difficult to make ends meet on their income. This suggests there are just under 2 million over-65-year-old homeowners who cannot afford the standard of living they would like. These consumers find themselves in a situation where they are asset-rich but cash-poor, and form a potential target market for providers of equity-release products.
Although releasing some of their housing equity is often the only plausible way for pensioners to raise extra income, equity-release products are treated with scepticism by the over-65s. This cynicism may be a result of the notoriety equity-release products gained during the early 1990s when thousands of elderly homeowners who had taken out home-income plans faced huge losses and the prospect of their homes being repossessed.
Less than one in ten in this age group support the idea of using the equity built up in their homes to boost their standard of living.
Another way the over-65s could boost their income is by making their investments and savings work harder for them.
Mintel’s study shows just under a third of this age group feel it is possible to generate more of an income from their capital, suggesting there are about 2.7 million over-65s who are dissatisfied with the returns on their savings and investments.