Executive Summary

WEALTH IN THE GREY MARKET

Pensioner households are more likely to have some savings, and less likely to have no savings at all than any other type of household. Households headed by a person aged between 45 and 75 are more likely than any others to own investment products of all kinds - for example, only 25% of households headed by a person aged between 35 and 44 owned stocks and shares in 2001, compared with 34% for the 55 to 59 age bracket.

Pensioners also have high house owner-occupancy levels, at a time when houses have grown in value as assets - by more than 40% since the first quarter of 2000. Lone pensioner households have the highest owner-occupancy levels of all groups; although the number of such households is currently decreasing, it is projected that in the future the figure will rise, with each household needing a range of insurance products.

INCREASE IN THE ELDERLY POPULATION

Between 1961 and 2001, the number of people in the UK aged over 65 increased by 51%. By 2011, the number is projected to be 10.3 million, which will represent 17.1% of the total population. The working-age population will grow very slowly in comparison, so the proportion of the population that is over 65 and/or retired will increase steadily into the 21st century.

Expectation of life at all ages is rising, such that the demand for guaranteed long-term income products is likely to increase, as is demand for financial management services to ensure efficient use of capital and sensible saving.

The majority of those aged over 65 are women, and women have different needs to men in the financial services market owing to longer life expectancy and lower incomes on average. They can expect lower annuity rates and higher health insurance premiums, but it remains to be seen whether the market can adapt to the increase in financially independent women earning salaries equal to their male contemporaries.

CONCENTRATION OF THE FINANCIAL SERVICES MARKET

Recent years have seen a rapid concentration of financial services companies, such that the market is likely to be dominated by a handful of large organisations. This has given rise to an increase in 'bancassurance' and the possibility of a 'one-stop shop' for financial services. Smaller, specialist providers that do not enter into such arrangements could be forced out of the market, so that healthy competition might be a casualty of consolidation.

Niche markets should remain untouched by this phenomenon. Saga continues to grow as a supplier of products to the over-50s, and is unlikely to become part of a general insurance provider. At the same time, interest in insurance products tailored to the over-50s market from the providers is not increasing.

CONSUMER TRENDS

The survey commissioned by Key Note from BMRB Access exclusively for this report found that there were significant levels of difficulty experienced by consumers in understanding and comparing financial products and services. This was more true of the pre-retirement group (aged 55 to 64) than of most others.

Generally, it emerged that the pre-retirement group and the over-65s have markedly different attitudes to a number of key issues in the financial products and services market. For example, pre-retirement consumers are much more likely to seek financial advice when making a decision to buy or change a financial service or product, while the over-65s were significantly less likely to do so than the sample average.

A major finding was that, in general, consumers are more happy to buy financial products over the Internet than over the telephone. There is, however, still resistance among consumers aged over 55 to the idea of buying without a face-to-face meeting or otherwise by non-traditional means.

MARKETING ACTIVITY

Three areas of the market have seen significant product development since Key Note's 2000 report. First, flexible annuities have been developed by Canada Life and Prudential to overcome the problems associated with traditional annuity plans, whereby the annuitant was bound to the same income level for life, and was committed to spending his or her entire pension fund at once.

Secondly, major providers have taken steps in the 'enhanced' and 'impaired' annuity markets, following the lead of small, specialist providers which pay higher annuity rates to people with lower life expectancy.

The third area of change is in the equity release market. This market is predicted to grow enormously in the next decade, now that it is coming under Financial Services Authority (FSA) regulation. This is likely to increase confidence for consumers and providers alike.

KEY ISSUES FOR THE FUTURE

Several major issues governing the future of the market are considered in this report. These include the raising of the state retirement age and the decline of the state pension; the creation of a single European market for financial services; FSA regulation and competition; discrimination by insurance providers; and genetic testing and its use in underwriting.

Price:	£ 775.00 GBP ex VAT (£ 910.62 GBP inc VAT )
Publication date:	30 Nov 2003
Licence period:	365 days

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