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MP65200

MAPS FINANCIAL SERVICES MARKETING TO THE RETIRED AND ELDERLY OCTOBER 2000

Overview

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Table of Contents
Executive Summary
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TABLE OF CONTENTS

Executive Summary	1
Wealth Concentrated Among the Over-50s	1
Rapid Rise in Numbers Over 75	1
UK Companies Slow Off The Mark	1
Confusion Fogs the Market	1
Marketing Priorities	2
1. Introduction	3
Objectives	3
Methodology	3
Original research	3
Definition	3
2. Strategic Overview	5
Market Dynamics	5
The Market For Financial Services For The Elderly	5
Table 1: Over-65s in the UK Holding Wealth ( percent of total), 1997-1998	5
Table 2: Proportion of Older People in the UK Population ( percent), 1961-2001	6
Financial Services for the Elderly in Summer 2000	7
Table 3: Household Income in the UK, 1997/98	7
Market Change in 1999/2000	8
Distribution	8
Competitive structure	9
Advertising review	9
Total Expenditure and the Biggest Advertisers	9
Prime Targets	10
The Consumer	10
Two-pensioner Households Often Able to Afford Financial Services	10
Confusion Restricts Market Growth	11
Table 4: Sources of Pensioners’ Incomes in the UK (£ per week), 1997/98	11
Marketing outlook	12
3. Demographic Influences	13
Background	13
population trends	13
Rapid Growth in 75+ Age Group	13
Table 5: percentage of the UK Population by Age Groups ( percent), 1961
and 1981, Forecast for 2001 and 2021	13
Table 6: Ratio of People Aged 60+ to All Others, 1996-2026	14
Table 7: Number of UK Households (millions), 1961, 1984 and 2000	14
Figure 1: Number of UK Households (millions), 1961, 1984 and 2000	15
Table 8: Number of Households† (000s), 1990-2003e	15
4. Marketing Trends	17
Advertising and promotion	17
Advertisements in Traditional Media	17
Table 9: Major Products for the Elderly Advertised in the UK in 1999/2000 -
April To March	17
Table 10: Major Products for the Elderly Advertised in the UK in 1999/2000
July to June	19
Figure 2: Main Advertisers of Products for the Elderly (£000s), 1999/2000 –
April to March	21
Table 11: Main Advertisers of Products for the Elderly (£000s), 1999/2000 –
April to March	21
Figure 3: Main Advertisers of Products for the Elderly (£000s), 1999/2000 –
July to June	22
Table 12: Main Advertisers of Products for the Elderly (£000s), 1999/2000 –
July to June	22
Advertisements in New Media	23
Direct Mail	23
Table 13: Purchases Resulting From Financial Direct Mail ( percent Who Have
Ever Made a Purchase), 1987-1999	23
Figure 4: Purchases Resulting From All Direct Mail ( percent Who Have
Made A Purchase), 1987-1999	24
Table 15: Direct Mail Response Rates ( percent response rate), 1999	25
Figure 5: Direct Mail Response Rates ( percent response rate), 1999	26
Point-of-Sale	26
Marketing	26
Hitting the Target	26
Loyalty Rewards	27
Retail Ambience	27
Distribution	27
5. Annuities	28
Problems with annuity law	28
Insurance Companies Run Annuities Market	28
Income Drawdown Adds Some Flexibility	28
Longer Life Expectancy Damages Rates	28
Investment linked annuities for better-off	29
New Annuities Offer Growth Potential	29
Added Flexibility With Five-year Annuity	29
Voluntary Annuities Popular for Long Term Care	29
Rapid rise in annuity payments	30
Big differences in annuity rates	30
Table 16: Pension Annuities in the UK (£m), 1994-1998	30
Table 17: Top Annuity Rates in August 2000 (Figures are the percentage
of a £100,000 fund paid as annual income)	30
6. Plans Offering Income In Return
For Capital Assets	32
Equity release has big potential	32
Daily Telegraph is a popular medium	33
Companies	33
7. Life Insurance and Funeral Plans	34
French and German-owned companies have big role
in senior life insurance	34
Funeral plans: some fatal finances	34
8. Medical Insurance	36
Expensive insurance for medical treatment	36
Simpler policies and capped plans	36
9. Long Term Care Insurance	38
Massive cost burden of caring	38
One in Four Over-80s Will Need Full-Time Care	38
Forced Sale of Home Feared	38
Table 18: Envisaged Method of Payment For Long term Care by Age, 1997	38
Insufficient Home Care to Meet Demand	39
Insurance market still small	40
Policy Disadvantages Have Held Market Back	40
More Attractive Products Appear	40
10. General Insurance	42
Property and contents insurance	42
Table 19: Sample Buildings and Contents Premiums For a Couple
Aged 55, June 2000	42
Figure 6: Sample Buildings and Contents Premiums For a
Couple Aged 55, June 2000	43
Motor insurance	43
Figure 7: Sample Motor Premium (£) for a Couple Aged 68 and 65, June 2000	44
Table 20: Sample Motor Premium (£) for a Couple Aged 68 and 65, June 2000	44
Travel insurance	45
Figure 8: Sample Travel Insurance Premium (£) for a Couple Aged 68
and 65, June 2000	45
Table 21: Sample Travel Insurance Premium (£) for a Couple Aged 68
and 65, June 2000	45
11. Wealth Management and Inheritance
Tax Planning	47
12. An International Perspective	48
Market developments	48
Competitive environment	48
INITIATIVES ABROAD	48
13. PEST Analysis	50
Political	50
State Spending on the Elderly Held Back	50
Table 22: Social Security Expenditure On The Elderly In Great Britain
(£m, current prices), 1978/79-2001/02	50
More Than 10.8 Million Receive State Retirement Pension	51
Table 23: Social Security Expenditure on the Elderly in Great Britain
(£million, constant 1998/99 prices), 1978/79-2001/02	51
Economic	52
Resilient Economy (Relatively Speaking)	52
Table 24: Spending on State Retirement Pensions in Great Britain
(£m, constant 1998/99), 1978/79-2001/02	52
Table 25: UK Economic Indicators: Prices, 1989-1999	53
Table 26: UK Economic Indicators: Earnings and Labour, 1989-1999	54
Majority Have Few Assets	55
Table 27: UK Economic Indicators: Real Exchange Rate, 1989-1999	55
Statistics Inflate Incomes	56
Table 28: After-tax incomes in the UK, year to 5th April 1998	56
Figure 9: After-tax Incomes in the UK, Year to 5th April 1998	57
Table 29: Key UK Forecasts, 1999-2002	58
Table 30: Household Savings Rate in the UK, 1990-1999	58
Figure 10: Household Savings Rate in the UK, 1990-1999	59
Table 31: Official UK Interest Rate ( percent), 1970-2000	59
Impact of Natural Resources on Retirement Prosperity	60
Social	60
Technological	61
Technology Not Always the Solution For Sales	61
Internet Valued as Information Source	61
Table 32: Views of the Internet ( percent), 2000	62
14. Consumer Dynamics	63
Overview	63
Table 33: Overall Levels of Agreement to Statements About Financial Services
For the Retired and Elderly, Compared With Responses From the 55-64s and Over-65s ( percent), 2000	64
Table 34: Confusion Over Financial Services and Reluctance to
Take Advice, 2000	66
Table 35: Keeping Up to Date With Financial Services in a Confused
Marketplace, 2000	68
Table 36: Preferences For Face-to-Face Meetings, and
Willingness to Buy Financial Services From Supermarkets, 2000	70
Table 37: Willingness to Buy Financial Services Over the Telephone
and the Internet, 2000	72
Table 38: Attitudes to Brokers and Independent Financial Advisers, 2000	74
Table 40: Preference for Buying Financial Services Direct, and Willingness
to Pay for Advice, 2000	78
Elderly more prepared to use up capital…	79
But market impeded by confusion	79
15. Company Profiles	80
Foreign companies see big potential	80
Larger role for post office	80
Charities get involved	80
Monopoly issues in medical insurance	81
What about the mainstream?	81
Abbey National	81
Corporate Strategy	81
Advertising	82
Distribution	82
Profitability	82
Table 41: Abbey National Financial Summary, 1995-1999	82
Future Developments	83
Alliance & Leicester	83
Corporate Strategy	83
Advertising	83
Distribution	84
Profitability	84
Future Developments	84
Table 42: Alliance & Leicester Financial Summary, 1997-1999	84
AXA Sun Life (AXA Group, France)	85
Corporate Strategy	85
Advertising	85
Distribution	85
Profitability	85
Future Developments	86
Barclays	86
Corporate Strategy	86
Advertising	86
Distribution	86
Profitability	86
Future Developments	87
CGNU	87
Corporate Strategy	87
Table 43: Barclays Bank Financial Summary, 1995-1999†	87
Advertising	88
Distribution	88
Profitability	88
Future Developments	88
Table 44: CGNU Financial Summary, 1995-1999	88
Cornhill (Allianz, Germany)	89
Corporate Strategy	89
Advertising	89
Distribution	89
Profitability/Future Developments	89
Equitable Life	89
Corporate Strategy	89
Advertising	90
Distribution	90
Profitability	90
Future Developments	91
Friends Provident	91
Corporate Strategy	91
Advertising	91
Distribution	91
Profitability/Future Developments	91
GE Life (General Electric Company, USA)	91
Corporate Strategy	91
Advertising	91
Distribution	91
Profitability/Future Developments	92
Halifax	92
Corporate Strategy	92
Advertising	92
Distribution	92
Profitability	92
Future Developments	93
HSBC	93
Corporate Strategy	93
Table 45: Halifax Financial Summary, 1997-1999	93
Advertising	94
Distribution	94
Profitability	94
Table 46: HSBC Holdings Financial Summary, 1995-1999	94
Future Developments	95
Legal & General	95
Corporate Strategy	95
Advertising	95
Distribution	95
Profitability	95
Future Developments	96
Lloyds TSB	96
Corporate Strategy	96
Table 47: Legal & General Financial Summary, 1995-1999	96
Advertising	97
Distribution	97
Profitability	97
Future Developments	98
Marks & Spencer	98
Corporate Strategy	98
Table 48: Lloyds TSB Financial Summary, 1995-1999	98
Advertising	99
Distribution	99
Profitability	99
Future Developments	100
Northern Rock	100
Corporate Strategy	100
Table 49: Marks & Spencer Financial Summary, 1996-2000	100
Advertising	101
Distribution	101
Profitability	101
Future Developments	101
Table 50: Northern Rock Financial Summary, 1995-1999	101
NPI (AMP, Australia)	102
Corporate Strategy	102
Advertising	102
Distribution	102
Future developments	102
Prudential	103
Corporate Strategy	103
Advertising	103
Distribution	103
Profitability	103
Table 51: Prudential Financial Summary, 1995-1999	103
Future Developments	104
Royal & Sun Alliance	104
Corporate Strategy	104
Advertising	104
Distribution	104
Profitability	104
Future Developments	105
Royal Bank of Scotland	105
Corporate Strategy	105
Table 52: Royal & Sun Alliance Financial Summary, 1995-1999	105
Advertising	106
Distribution	106
Profitability	106
Table 53: Royal Bank of Scotland Financial Summary, 1995-1999	106
Future Developments	107
Saga	107
Corporate Strategy	107
Advertising	107
Distribution	108
Profitability/Future Developments	108
Sainsbury’s Bank	108
Corporate Strategy	108
Advertising	108
Distribution	108
Profitability	108
Future Developments	109
Standard Life	109
Corporate Strategy	109
Advertising	109
Table 54: J Sainsbury Financial Summary, 1995-1999	109
Distribution	110
Profitability	110
Future Developments	110
Tesco	110
Corporate Strategy	110
Advertising	110
Distribution	110
Profitability	110
Future Developments	111
Virgin Direct	111
Corporate Strategy	111
Table 55: Tesco Financial Summary, 1996-2000	111
Advertising	112
Distribution	112
Profitability	112
Future Developments	112
The Woolwich	112
Corporate Strategy	112
Advertising	112
Distribution	113
Profitability	113
Future Developments	113
Table 56: Woolwich Financial Summary, 1995-1999	113
16. The Future	114
External influences: pressures on incomes	114
Sound UK Economy	114
Squeeze on Finances	114
More Older Borrowers	115
Pensioners Have Most Savings	115
Opportunities and barriers	116
Inflation and Population Forecasts	117
Table 59: Inflation Forecasts, 1999/2000-2004/05	117
Table 60: Projected Population By Age in the UK, 1998-2021	118
Marketing for the future	119
Companies to Watch	119
Marketing to the Over-50s	120
Clear Products Better Than Labels	120
Direct Mail the Key – But it’s too Confusing	120
Greater Potential in the Papers	120
Real People are Critical for Sales to the Elderly	120
British Companies Caught Napping	121
17. Sources	122
Glossary of Terms	128
Specific Definitions	128
A, B, C1, C2, D, E	128
Annuity	128
APR	128
AVC	128
BUPA	128
CAPPA	128
Deferred pension	128
DTEA	128
DTI	128
FSAVC	128
FTSE	129
Funded pension	129
GDP	129
Guarantees	129
Home income plan	129
Home reversion plan	129
IFA	129
IPA	129
ISA	129
Joint life	129
Major British banking groups	129
NAPF	130
Occupational pension	130
OEIC	130
OFT	130
OPRA	130
Pay-as-you-go pension	130
Personal pension	130
PPI	130
PPI	130
Roll up interest	130
RPI	131
SERPS	131
SIPP	131
SSP	131
Stakeholder pension	131
TESSA	131
TUC	131
WAP	131
General Definitions	131
Above-the-Line or Main Media Expenditure	131
Annual Growth Rate	131
Below-the-Line Advertising	132
Cif	132
Constant Prices	132
Current Prices	132
Fob	132
Forecasts	132
MSP	132
‘Real’	133
RSP	133
About the Sources Used	133
ACNielsen MMS	133
Prodcom	133
NOP	133
Trade Association Data	134
Trade Sources	134

EXECUTIVE SUMMARY

Wealth Concentrated Among the Over-50s

The over-50s in the UK hold 80 percent of all wealth and 60 percent 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 Over 75

The 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 & 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.

Marketing Priorities

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.

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Last updated by Duncan Nottage 6th June 2001