Executive Summary

This paper puts forward the view that there are opportunities for financial brands to develop their offerings for the over 50s market. In particular, direct-to-consumer products and services aimed specifically at the middle 40% of households in net wealth terms. This group is defined as holding financial and property savings and pensions of between £58,000 and £239,000.

We’ve identified a new and unique way of looking at the direct-to-consumer opportunities for financial services brands catering to the needs of over 50s. It focuses on the middle 40% of net wealth individuals. This middle 40% are different from previous generations. They are living longer and have higher expectations about their standard of living.

However, poorly performing annuities and pension reforms mean that this middle 40% also need advice to plan their future. For many, this advice is currently too expensive or simply not seen as financially viable. This creates a significant opportunity for financial services brands. Today, financial services brands need to appeal directly to this 40%, especially those saving and investing before retirement and whilst working during semi-retirement.

Who Are The Forgotten 40%?

We conducted quantitative analysis using Interact, our extensive in-house database, to break down the middle 40% into four distinct segments.

1. Ten years younger: 50-55 age bracket with a younger attitude than other segments
2. Fun & games: Up for a chance. Don’t always manage their money well, but do give generously
3. Home comforts: Careful and secure, with little interest in culture or travel.
4. Environmental adventurers: Show interest in environmental issues and have an outward-looking attitude.

Retirement & Pension

It’s no longer all about the high net wealth.

The Growing Retirement Opportunity

Whilst the ‘top’ 30% of households will always receive attention from providers and advisers alike, the middle 40% has emerged as an extended middle class with distinct needs. However, neither financial services brands nor financial advisers are currently fulfilling their particular requirements. This creates an opportunity for providers to directly engage with this group and to gain a deeper understanding of their motivations and behaviours.

We’re focusing on the middle 40% of households. This group is defined as holding financial and property savings and pensions of between £58,000 and £239,000.

What Is Driving This New Opportunity?

There are two key drivers

Firstly, the attitudes and aspirations of this middle 40% are very different from previous generations. This provides an opportunity to engage with them differently. Secondly, the April 2015 pension freedoms have created market-wide confusion, especially amongst the middle 40%. Of all groups, they have the most finely balanced of decisions to make regarding their pension pots.

Despite this, it’s evident that the group is being largely ignored by both providers and advisers. This has created a gap between guidance and advice and has left the middle 40% to fend for themselves. So, we’re calling upon financial services brands to take advantage of this void and to start connecting with this profitable group.

These people have the most finely balanced of decisions to make regarding their pension pots.

Who Are We Talking About?

Before we introduce you to the forgotten 40%, we need to provide some background information. In the graph below, you will see there is huge disparity of wealth amongst the next generation of UK retirees.

Breakdown of aggregate savings (NET) 2008/10 where household head is aged 50-64 by decile

In many ways, planning for retirement won’t change a great deal for people at either end of the wealth spectrum.

At The Top

At the top, are the asset-rich who have benefited the most from property price rises and boom periods in the share market since the 1980s.

The most recently published figures on this age group (ONS Pension Trends Chapter 10: Saving for Retirement, 2013 Edition) show that the top 10% have average net savings of £1.5bn. This group owns 49% of net savings, covering private pensions, savings and property asset value (not including their primary residence).

Those in the next two highest deciles also fare well, and seem set for happy retirements with average net savings of over £440,000. They account for 30% of all wealth in the age group, and are likely to have financial advisers.

At The Bottom

At the other end of the spectrum, the lowest three deciles all have savings amounting to less than £25,000.

This 30% of 50-64 year olds own less than 1% overall and will be more reliant on their state pension.

What About The Middle 40%?

The picture is far less clear for the middle 40%, deciles 4-7, who are the focus of this paper. They are interesting because, while they currently enjoy relatively comfortable lifestyles, they will need to plan carefully for retirement if they are to maintain these lifestyles. They may only account for about 20% of the wealth within their age group, but this is more a reflection of the disparity caused by the top decile in particular. The middle 40% has average net savings of £140,000, ranging from £58,000 to £239,000.

Most will not be able to guarantee a luxurious retirement, so they are arguably the group most in need of advice. They have the most to gain or lose from critical financial and investment decisions leading up to, and during, retirement. And these decisions have been made more complex by the pension reforms. Life events and their future aspirations all have a large impact.

How Are They Different?

Naturally, today’s 50-64 year olds expect to live longer and take a far longer term view of later life than previously. However, their attitude and outlook is compounded by their experience of the Thatcher years.

In 1980 the youngest in this age bracket were soon to enter adulthood, whilst those at the upper end had reached 30. So we are talking about phenomena such as the ‘Yuppies’ and the better-off working class who benefitted from the right-to-buy property policy.

For better or for worse, Thatcher’s liberalisation policies extended wealth further down the population spectrum and polarised the gap between the top and bottom.

How Will The Pension Freedoms Affect Them?

In many ways, this middle 40% were front of mind for the pension reforms. The poor value of annuities, which averaged over 5% in 2009 to nearer 3.5% by 2014, were highly detrimental to them.

For example, take a retiree in the 5th decile, retiring at 65 with a not insignificant £150,000 of pension savings. They would do very well to find an annuity at 5%, which would pay them £7,500 per year or £625 per month. Whilst this is not an insignificant amount, even allowing for a good state pension of £6,000 per year, an annual income of £13,500 is likely to be below this person’s expectations.

The pension freedoms were essentially designed to avoid locking retirees into low pay-out annuities, and to give them autonomy over their hard-earned savings.

However, to date, the reality has been very different. In their Pensions Freedoms report, AKG highlight that advisers are focusing almost entirely on the highest net wealth group.

There are several reasons given. Firstly, it is the high net wealth investors who are most keen to take advantage of the new rules and tax efficiencies specifically. Plus, advisers can be cautious of lower level pensions pots. Many worry about future retribution if their investments tumble after being paid for advice. These factors have led to the advisory black hole. This gap is both a current danger and an exciting opportunity for financial services brands to find ways to communicate and provide for this important market segment.

What Happens Next?

This very much depends on who grasps the opportunities that the pension freedoms have provided. The issue post-retirement is highly complex, so it’s not surprising that providers would be less likely to offer direct consumer advice. Many advisers will not serve clients with medium sized pots, and in the same way, providers will also steer clear

However, we are talking about those aged 50 up to retirement. Most would agree that saving more whilst still accumulating wealth is a good thing. So providers can certainly take advantage of the current gap in advice.

The problem is that those who need advice the most are the ones that can least afford to pay for it. This means there is a real quandary around helping them become self-sufficient. Whilst the government’s Pension Wise service and organisations such as Which? are offering a level of guidance, they are unlikely to solve the problem. After all, every individual circumstance and risk profile is different. Guidance can offer general direction, but leaves customers doubtful about their decision.

How Can Brands Start Engaging With This Next Generation?

There are a range of issues that brands need to consider to engage effectively with this next generation. McCarthy & Stone highlight:

• Agelessness – the feeling that they are not old
• Relationships – the growing importance of family and friends
• Activeness – both in body and mind, and experiencing new things

Older people do not feel old. So financial brands need to respond to this with a progressive approach to retirement planning. They must appeal to two needs: balancing their aspirational needs, and caution for their future.

Breaking Down The Forgotten 40%

To engage effectively with this audience, financial services brands need to know more about their individual needs and motivations. So we’ve used our in-house analysis tool, Interact™, to identify the middle 40% and then cluster them based on behaviour and attitude, rather than age and wealth.

To do this we’ve analysed people aged 50-64, to match the age and wealth group covered by ONS. Let’s take a look at these four segments.

Ten Years Younger

These people are both tech-hungry and eager to explore the world. While more of them fall into the 50-55 age bracket, their attitude makes them comparable to younger generations.

Typical traits

• Tend to be aged 50-55
• Their attitude is the youngest of all the segments
• Many are families with children
• Love tech and exploring the world
• Doing well with money (wealthier and more likely to have investments
• Online savvy and more technically minded

Most likely to...

• Buy clothes online
• Listen to podcasts and download music
• Talk to friends about the latest technology
• Create their own website or blog
• Believe that the brands they buy say something about who they are

Least likely to...

• Donate to charities
• Read newspapers on a regular basis
• Purchase items via mail order catalogues

Segment 2: Fun & Games

These people seem up for a chance, but aren’t always lucky. While they don’t always manage their money well, they are generous givers.

Typical traits:

• Large numbers of families with children
• Likely to have some debt concerns and display poor money management
• Frequent users of online channels but still learning their way around tech
• More likely to have mail order accounts and credit
• Doing well with money (wealthier and more likely to have investments)
• Aspirational interests backed up by being players of bingo, gambling and lotto

Most likely to...

• Regularly play the lottery and enjoy gambling
• Donate to charities
• Spend a lot of money on pets
• Take multiple holidays

Least likely to...

• Listen to online music or streaming services
• Use their smartphone for payments
• Live their lives without relying on an overdraft or credit
• Trust online reviews

Segment 3: Home Comforts

This group are careful and secure. They like to stay close to home and are not very interested in experiences or travel.

Typical traits:

• Ages spread across the 50-65 age bracket
• Unlikely to have children still living at home
• Most are owner-occupiers but a significant number are in rented accommodation
• Tend to be employed in managerial/senior admin roles
• Enjoy a quiet, settled lifestyle with routine
• Limited range of interests – they ‘like what they like’

Most likely to...

• Respond to branded email communication
• Watch broadcast TV and listen to live radio
• Create their own website or blog
• Enjoy DIY and home improvements (home owners)

Least likely to...

• Be interested in fashion and trends
• Take lots of risks, so certainly not fans of gambling
• Travel abroad or take foreign holidays
• Spend a lot of time or money shopping for pleasure
• Be interested in the theatre and the arts

Segment 4: Environmental Adventurers

Although not evangelists, this group show an interest in environmental issues and have an outward-looking attitude.

Typical traits

• Traditional in their outlook on life
• Amongst the oldest of the 50-65 age bracket
• Living as couples with children no longer living at home
• Limited engagement in the digital world but do recognise the importance of tech
• Passionate about green issues and ‘doing their bit’
• Comfortable with money and not likely to have any debt problems
• Average income and very limited investments

Most likely to...

• Support environmental charities
• Be interested in wildlife
• Have an interest in theatre and the arts
• Donate to charity
• Do lots of recycling
• Be on a diet (massively over index on slimming)

Least likely to...

• Use online banking or mobile apps to manage finances
• Read online blogs or spend much time online
• Refer to review websites for brand decisions
• Watch videos online

Ten Ways Financial Brands Can Appeal To The Middle 40%

1. Understand attitudes on a deeper level. 50-64 year olds are not a homogenous group, so serving them means understanding the complex motivations of the ‘80s generation.
2. Create easy to understand products The middle 40% probably don’t require the most sophisticated flexibility, so create easy to understand packages.
3. Offer limited advice direct to consumers prior to retirement. Go beyond the guidance of PensionWise and fill the adviser black-hole by taking a customer-centric approach to wealth accumulation prior to retirement.
4. Keep it straightforward. As consumers have more flexibility and choice, new straightforward products are needed. These should be easy to buy when the customer doesn’t want advice.
5. Personalisation tools. Enable customers to easily share their aims and plans for the future, creating a personal connection with the brand.
6. New language. Use consumer lexicon that focuses on lifestyle and living rather than finance and ‘later life’. This means going beyond using ‘plain English’ and instead using terminology that is right for the generation.
7. New tone. Use a tone that chimes with women, as they now hold increasing levels of wealth from their careers.
8. Build customer relationships. Become a partner for the customer, helping them become self-sufficient and enabling them to monitor their investments up to retirement.
9. Create emotional connections. By understanding attitude and behaviour, brands can connect with consumers in more powerful, relevant and useful ways.
10. Take a needs-based approach. More than ever, the emerging needs allow you to focus your strategy on the consumer need rather than product requirements.