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MP65207

MAPS FINANCIAL SERVICES MARKETING TO THE RETIRED AND ELDERLY OCTOBER 1997

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Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

There is evidence to confirm that people are living longer and a growing proportion of the population is falling into the category of ‘retired or elderly’. Individuals born 25 years from now can expect to live between 6 and 7 years longer than those born in 1980, whilst over a fifth of the population are currently aged 60 or more, with large increases forecast through to the year 2031. Adding to this the increasing numbers of people retiring before the SPA illustrates the huge market available to financial services marketers.

As well as expanding in numbers, they tend to be healthier and more active than their predecessors as well as being generally wealthier. Pensioner incomes have grown faster than the incomes of other types of household in recent years, leading to an improvement in the relative position of pensioners in the overall income distribution.

DSS projections suggest this trend is likely to continue, with pensioner incomes being 50 percent higher in real terms by 2050. The main contribution to the increase in pensioners’ average incomes has been from the growth in second tier pensions, including occupational and personal pensions, which have increased coverage and average amount in payment to those in receipt.

Benefits paid to the elderly currently represent 44 percent of total government benefit expenditure, though as a proportion this has decreased in recent years as pensioners have become better off. The area of growing concern for the government is the phenomenal rise in benefits paid out for long term care, having risen by 55 percent in the past four years to 1995-96. The retired and elderly thus find themselves centre stage of a social and political debate about who should fund long term care.

A Royal Commission has been promised by the new government to tackle the problem of rising care costs, though it will be at least two years until it produces a report. The Office of Fair Trading (OFT) has also launched an inquiry into the way care is provided for the elderly to establish whether people are getting value for money.

As a solution is sought, opportunities may exist for private sector initiatives within the financial services industry though bringing down the cost of long term care is important if the customer base is to be increased.

Many financial services institutions have recognised the potential within the retired and elderly market but few have developed specific products, arguing that existing products are equally suitable for all age groups. The majority of special products that are offered unimaginatively go no further than offering a discount off a standard package.

Despite the bad publicity generated by home income plans linked to high risk investment bonds at the start of the decade, Market Assessment believes that home income plans will grow in importance. As increasing numbers of people become homeowners and find the majority of their wealth locked up in the houses they are living in, the logic of the concept seems undeniable.

Signs that things are beginning to change are certainly evident in the life assurance sector where the elderly and retired are coming under siege from the industry as they reach a stage in life where their mortgage commitment is ending and with it their life assurance cover ceases. This is highlighted by the fact that the advertising specifically to the retired and elderly accounts for 18 percent of total industry advertising in the pensions and life sector. This figure is significantly greater than for any other area of advertising to these consumers.

The complexity of products, particularly with regard to long term care and health insurance, does not aid the sale of these products. In July 1996, the OFT published a report on health insurance, highlighting the complexity of the products and the questionable selling methods used.

Whilst many people may be putting on hold their purchasing of such products until they get a clearer lead from the government, the absence of action within the industry to simplify the product offerings can only damage sales growth.

Exclusive research conducted by Market Assessment, reveals that it is not just the older age groups who are confused by the marketing of financial services and the current offering of financial services. As much as 71 percent of people consider the marketing of financial services confusing, whilst 59 percent of people are confused by the current offering of financial services.

The most significant difference highlighted between the eldest segment of the population (65+) and the rest of society is the greater inclination of them to make personal financial decisions without taking advice from others. Whilst 51 percent of the 65+ group are prepared to make their own financial decisions, this figure declines to 37 percent for the next largest age group.

In tandem with taking their own decisions, the older population are more cynical of the advice given by financial services providers and are less likely to pay for independent advice. Whilst around 60 percent of the population in total said they would be prepared to pay for independent advice, this figure fell to 43 percent within the 65+ age group.

The importance of carefully segmenting the market certainly applies to the elderly and retired. It would be just as futile to portray all the elderly as incontinent, denture-wearing folk shivering in their homes as it would to portray the young as lazy, drug-crazed hooligans.

The retired and elderly contain segments of consumers, some of whom are enjoying their retirement in pensioned comfort, some of whom are less financially secure and all with varying degrees of financial product penetration. The needs of each group with respect to financial products can be very different. This is highlighted in the original research undertaken Market Assessment by examination of significant differences in attitude between the two age groups containing retired people - the 55-64 group and the 65+ group.

Conclusions to be drawn from the research with respect to the eldest age group is the need for simplified products, the current absence of consumer trust in the product providers and the unwillingness to pay for independent advice. In terms of distribution the telephone holds little appeal and there is relatively less appeal in purchasing from retailers than among younger age groups.

Within the 55-64 age group, however, the conclusions are in some cases significantly different. This group are more likely to pay attention to new financial products; are more prepared to pay for independent advice and are less cynical of the financial services industry. They remain, however, as confused as the rest of the population by the marketing and product offerings.

Market Assessment does, however, believe that the issues of product complexity and bad publicity that seem to go hand in hand with many of the products aimed at the retired and elderly will eventually be good news for the consumer. Surely it can only be a matter of time before one of the new financial providers, with an established, trustworthy name, such as Virgin, enters the market with a clear easy to understand product with mass appeal.

Text © 1997 MAPS

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