By Anne Stagg, MD, Indicia

Retirement planning is very different to twenty years ago. People are living for longer and therefore have a different view of growing older and are preparing for the future. With the 2012 pension policy reforms – introduced to prevent retirees from getting locked into low pay-out annuities – there is a growing need for financial advice and products as people look to get more from their money.

Indicia has found that where high net worth individuals have the money to spend on professional financial advice, there is a segment of customers between the age of 50-64 who are middle income in net wealth terms and poorly served by financial brands. These customers are used to living with an above average salary and a high quality of life. Without the final salary pensions of the past and the low annuity and interest rates available, it will be much harder to maintain this lifestyle in retirement.

The opportunities in the retirement and pension area are growing for financial brands. It’s no longer all about the high net wealth individuals. The middle 40 per cent has emerged as an extended middle class with very distinct needs when it comes to maintaining their expected lifestyle into retirement.

Who are the forgotten 40 per cent?

We have analysed ONS’s latest Pension Trends Report to gain an understanding of the next generation of retirees in the UK (aged 50-64). The findings show that there is a huge disparity of wealth.

Most often prioritised by IFAs, the top 30 per cent are asset-rich consumers who have benefited most from rises in property value and boom periods in the share market since the 1980s. ONS’s figures show that the top 10 per cent alone have average net savings of £1.5bn. At the bottom, there is the 50-64 year old bracket, who own less than 1 per cent of the overall pot and will be far more reliant on a state pension.

The middle 40 per cent is far less clear. While only representing 20 per cent of the wealth in their age-group, they still have average net savings of £140,000. The majority of individuals within the middle 40 will not be able to guarantee a luxurious retirement, so they are arguably the group most in need of advice.

Understanding the needs of the forgotten 40 per cent

To understand how to provide the right advice to this group of consumers, it’s first important to look at how their attitudes towards life and retirement differ.

Those aged over 70 are generally focused on preserving savings to pass on to their family. The 50-70 age group, on the other hand, have accumulated household wealth and want to spend it on their lifestyle.

The middle 40 per cent differ to previous generations with higher expectations regarding their future living standards. As they expect to live longer, they have a much more long term perspective on life.

The Colour Report by McCarthy & Stone reveals interesting insights about the group and how they feel. The majority feel that old age starts at 70. 66 per cent of 65-69 year olds feel younger than their age and have higher levels of confidence and independence than previous generations.

This group do not want to slow down in retirement.

20 per cent of over-55 year olds have ambitions to travel and 83 per cent are exercising more since retirement. This age group feel that they still have a lot more to learn. They also have ambitions to give, but need increased financial stability for this ambition to be realised.

What is the opportunity for financial brands?

The Pensions Freedoms Act was designed to give individuals autonomy over their hard-earned savings. Initially this put individuals in the middle 40 per cent, front of mind.

In reality, the outcomes have been very different.

Instead, advisers are primarily focusing on the highest net worth investors, who are less likely to cause retribution in the future if investments tumble.

These factors have led to an advisory black hole, which is both a danger but also a massive opportunity for financial services brands.

How can financial brands engage the forgotten 40 per cent?

Currently, 80 per cent of consumers in this group feel that brands are missing out on them. There is therefore an opportunity to better understand this group and their specific needs, motivations and aspirations.

By undertaking quantitative research into this age group through our proprietary database, we have identified four segments within this group:

  1. Ten Years Younger: 50-55 age bracket with a younger attitude than other segments. This group are tech-hungry and eager to explore the world. Their attitude is most comparable to younger generations
  2. Fun & Games: Up for a chance. Don’t always manage their money well, but do give generously. They are likely to donate to charity and spend a lot of money on holidays and pets
  3. Home Comforts: Careful and secure, with little interest in culture or travel. This group like to stay close to home and are not interested in experiences or travel. They like routine and are risk-adverse
  4. Environmental Adventurers: Show interest in environmental issues and have an outward-looking attitude. They are passionate about wildlife and have an interest in the arts and culture.

By understanding the characteristics of customers on a deeper level, it’s far more likely that financial brands will be able to create products and provide the services they need to make important investment decisions.

First and foremost with this age group, it’s important to keep communications simple. The middle 40 per cent don’t require the most sophisticated flexibility, so brands should create easy to understand packages. Consumers have more flexibility and choice so brands need to offer easy to understand packages. Customers should be able to purchase easily when they do not want advice from financial advisers.

When targeting this group, financial brands should also adopt a new language to communicate with. For this age group, the focus needs to be on maintaining lifestyles rather than on financing and planning for later life. The clear message needs to focus on conveying how the FS product will help the individual enjoy life.

Lastly and most importantly perhaps, it is vital for brands to focus on building customer relationships and to create emotional connections and secure customer loyalty in the longer term. Brands need to become a partner for the customer, empowering them to become self-sufficient and help them to monitor their investments up to retirement.

Life doesn’t end at 50. The way in which individuals see retirement has changed. As such, the approach which brands need to take must also change. There is a huge opportunity to engage the forgotten 40 per cent if advisors address individuals’ needs fully and in a personal way. Financial brands need to offer the right investment products and advice to ensure consumers can continue enjoying and exploring life well into their 70s.

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