At the time of year, we in the industry tend to get asked what we believe will happen over the course of the next 12 months.
Advisers, in particular, are often asked to give their opinions on what are likely to be the ‘go to’ sectors in the market; which parts of the market have the strongest demand drivers and are ultimately likely to provide a growing business opportunity?
In my recent experience, a few ‘usual suspects’ tend to be cited, one of which is always the later life lending market. Which, to my unbiased mind, makes absolute sense and even more so in a pandemic environment which is likely to be with us for some time to come, even if we are learning to cope and deal with it.
However, it’s one thing for advisers to recognise the growth potential in later life lending, and it’s another thing entirely to have the confidence to explore the options and to add it to their advice proposition in order to benefit from its potential.
To that end, I think it’s important to set out exactly why that growth potential exists. Advisers might already have seen first-hand that demand from clients, but again in a pandemic world where everything might seem a little different, is this going to be maintained?
At our recent Annual Conference, the former Minister of State for Pensions, Steve Webb, set out beautifully the impact the pandemic has had on many older individuals and why that impact is likely to result in the need to utilise housing wealth even more in the months and years to come.
Effectively, Steve outlined why the later life lending borrower demographic has got that much bigger since the pandemic first hit our shores back in February 2020.
First up, would be the impact on jobs and how COVID has effectively meant large numbers of people, who hadn’t planned to this early, have now retired from work. The number of people who now say they’re retired has increased by over 100,000 since Quarter 4 last year, and this truncated working life – which wouldn’t have been anticipated as recently as 2019 – will have a big impact on an individual.
For a start, they are unlikely to now be paying into a pension pot; quite the opposite, they’ll be drawing down their pension, and clearly the smaller the pot, the more they will be eating into its value. This, at a time, when the average retirement can be 20-plus years, perhaps even more so if they are one of these reluctant retirees who have gone early.
Secondly, of course, is the impact of higher inflation on pensioners. Fixed incomes do not change, and the increased cost of heating a home, buying the weekly shop, and so many other goods and services, puts pressure on them.
Interestingly, it’s not anticipated that this period of very high inflation will last too long into the future. Indeed, by Q4 2023 it is anticipated to be back down to the 2% target, however throughout 2022 we’re led to believe it could be over 4% – perhaps well over – for the entire year. Again, that has to be stomached by a retired individual.
Finally, we have the impact of what the Government does, in particular how it responds to the huge amounts of money it was forced to find during the pandemic to cover furlough, and the like. The increase in borrowing has to be covered at some point and it will be done through tax rises and spending cuts, so again the likelihood is that the support pensioners have traditionally received from the State may not be what it was – pensioners will have to cover the shortfall themselves.
All of the above – and much more it has to be said – leads us to a point where retirees might be looking at their home as an asset worth utilising in order to meet the demands they have. Incomes and savings are being eaten away by both inflation and the low level of interest rates achievable, which is leading many homeowners to look at their options.
Accessing that equity is not a run-of-the-mill decision that can be done via a comparison site though. When it is this important, consumers want professional advice but they also want to know that they are accessing advisers who cover off all the available solutions – that might be equity release, but it might also not.
So, as you can see, there’s a very good reason why the later life lending market is seen as a shining star in financial services. All the drivers are there to produce increased demand – now you have to ensure you have everything in place to meet it.
Stuart Wilson is CEO at Air Group