Legal & General : Our future financial lives - the intergenerational impact of an ageing population

11 Jul 2019

This blog uses content from 'Our future financial lives' prepared by CMS Legal Services, with research from Cicero Group (cicero-group.com). The report includes many insightful analyses, including one written by John Godfrey, Legal & General's Corporate Affairs Director. The report looks at the ageing population and the impact it's likely to have on the relationship between the elderly and their families. The full report contains considerably more insight than is possible in this brief summary. There are links to the full report and a video on this page.

Some startling facts about our ageing population

The latest projection shows that in 2041, the UK population will have reached almost 73 million. Baby Boomers will be in their 70s and 80s and Generation X will be at or nearing retirement. There will be 6.8 million people in the UK aged 65 years or older and the 85+ age group will have doubled to 3.2 million.

30 years later, more than a quarter of UK residents will be aged 65 years or older, around 20.4 million people. 5.1 million people will be aged 85 years or more.

While we know that life expectancy is increasing, good health is less certain. People currently spend between 44% and 47% of their lives from age 65 in poor health. At the age of 65, men in the UK can expect to live nearly another 19 years, but eight of these years will be in poor health. Women can expect to live another 21 years, but nearly 10 of these will be in poor health.

The reality of costs in later life

For those with long-term health conditions, there comes an increased need for care. Cancer and heart disease patients can expect free medical treatment to be available on the NHS, but for someone with an illness such as dementia, help is much more limited as the type of care needed is classed as social care, which often isn't free. It's estimated that the typical cost of care for someone with dementia is currently £100,000.

The think tank, Global Future predicts that demand for social care will rise by £12 billion by 2030/31, growing at an average 3.7% a year. This will create a shortfall in funding of £1.5 billion in 2020/21 and £6 billion by 2030/31. By 2026, around 420,000 more care workers will be needed to keep up with the needs of our ageing population.

British households aren't building sufficient retirement wealth

The following stats show that while those who are retired often don't have enough pension income to lead a comfortable life, people coming up to retirement totally underestimate how much income they will need in retirement.

This chart illustrates that of those set to hit state pension age before 2048 (Generation X+), only 40% believe that they should target a private pension in excess of £100,000. Given current annuity rates, a pot of £100,000 would buy an annual retirement income of only around £4,000 to £5,000.

The Bank of Son and Daughter

We often hear that the Bank of Mum and Dad is now one of the UK's top 10 mortgage lenders as Britain's unsustainable house prices mean that parents need to help their children get on the housing ladder. But the intergenerational exchange of wealth assets also goes the other way.

One of the impacts of an ageing population is that wealth may begin to trickle up rather down through the generations, from working children to their retired parents, and even grandparents. 33% of Millennials/Generation Z think it likely that they will be called upon to provide some kind of financial support to elderly parents during the course of their retirement. This confirms the emergence of a new trend.

The advice gap continues to get worse

While financial advice does exist, it's harder to get advice on financial affairs, linked to health issues and the impact on your family. Legal & General's John Godfrey believes: 'that the industry is all too aware of the growing numbers of older customers and how wealth ownership is changing - but how it adapts to the new client landscape is not so clear-cut, especially as the pause button on creating financial products for care funding has been hit until government policy for long-term care is clarified.

This new normal may require individuals to deepen their financial management, and to get more advice. 'Where do, and will, people get advice on things like shared ownership, complex multiple pensions, treating a house as just another asset or not owning property at all? At the moment, the aversion to regulatory risks means there isn't much affordable advice on the high street. It's a big gap, especially as lives become more complicated.'

2012's Retail Distribution Review shook up the advice industry, effectively making consumers pay up front in cash for investment advice. Brooks Macdonald's Adrian Keane-Munday suggested that: 'The advice gap continues to get worse,' 'In terms of suitability, the FCA is looking at the post-Retail Distribution Review landscape, and did it deliver what it was supposed to? Increased costs have created less access to financial advice.'

Changing patterns of financial care-giving

With the numbers of over 65s set to increase rapidly by 2040, the need for future financial caregiving will also increase. This means mean assistance with managing everyday finances such as making deposits and withdrawals, monitoring transactions and paying bills as well as more complex matters such as investment decisions.

Over 30% of Current Retirees rely upon family and friends, or expect to do so in the future, for assistance with basic financial needs such as bill paying, making or monitoring deposits and withdrawals and making saving and investment decisions. Areas where Current Retirees wish they had greater support are in making investment decisions (15%) and identifying financial abuse (13%). It is worth noting again, however, that by 2030 two million over 65s will be childless, creating a cohort who will not be able to rely on immediate family for their financial caregiving.

However less than two thirds of current retirees feel confident relying on family members when making financial plans.