Financial firms must do more to meet the needs of older consumers, says UK regulator

Recent research has suggested that too many financial products and services are designed for a 'typical' customer and are not flexible enough to reflect individuals' needs, the regulator said. This is a particular concern in the case of older customers, as the fastest-growing section of the population, it said.

The FCA is seeking input by 15 April from firms, consumer groups and other interested parties on ways to improve financial markets for older consumers and the role of the industry in addressing those issues. It will then use this feedback from its latest discussion paper to develop a "regulatory strategy", which it plans to implement in 2017.

"The number of people aged over 65 in the UK is expected to increase by 1.1 million in the next five years," said Tracey McDermott, the FCA's acting chief executive. "There is a real and urgent challenge for the financial services sector to develop new and innovative products to meet the needs of our changing population."

"The publication of this discussion paper is intended to stimulate debate and discussion about these needs and how to meet them … This work will help us and the industry to develop our approach with the benefit of insights from others, in particular those representing the end consumers of these services," she said.

The paper gathers together contributions from industry bodies, regulators, think tanks and consumer groups to act as prompts for further discussion. These include how older customers assess their own needs, how they access financial products and services and advice, and how banks, insurers and pension providers should adapt to the challenges presented by increasing longevity.

Among the issues discussed in the paper are the risk of older people underestimating their life expectancy and "running out of money"; their "capability" to make good financial decisions and deal with unexpected financial difficulty; and how the retirement income market should develop to protect those who do not play an active role in investing their pension pots and deciding on the best way to use their savings. It also raises issues relating to age discrimination, and the extent to which older people are excluded from digital products and expensive financial advice.

Many of the contributors to the discussion paper brought up the challenges introduced by the pension 'freedoms' introduced in April 2015. These reforms, which gave members of defined contribution (DC) pension schemes more flexibility over how to access their savings once they turned 55, have resulted in more and more older people who might traditionally have purchased annuities having to think about the best ways to invest and save, said pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com.

"This is fine for those who understand what they are doing and are in good health, but as people get older they may become less able to make the right financial choices and more prone to doing the wrong thing," he said. "They may end up spending their savings too quickly, becoming too frugal, or handing over all their savings to a scammer."

"These potential problems deserve to be thought through, and we therefore welcome the FCA's discussion paper. The pensions industry and the regulators should work together to identify what can be done to help older people make the right choices," he said.

Financial regulation expert David Heffron of Pinsent Masons said that there was a "business incentive" for firms to provide better support for older consumers.

"As the discussion paper points out, the number of UK consumers aged over 65 is set to increase by 1.1 million over the next five years," he said. "Firms across the financial services sector will need to consider the differing needs of older consumers – not just from the perspective of regulatory compliance and risk management, but also because the increased buying power of that segment provides a business incentive to do so, as older consumers will inevitably gravitate towards firms who understand and respond to their needs."

"Product design, sales and marketing, customer reporting, security and complaints handling - these are all areas in which firms can improve both outcomes and experiences for older customers," he said.