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Older people and financial services: the CML's response


Published: 15 April 2016 | Author: Bernard Clarke

The financial needs of older people could be better served by the kind of innovation that emerges when all interested parties work together in a favourable regulatory environment, our new submission to the Financial Conduct Authority (FCA) argues.

In our response to the FCA's discussion paper on the ageing population and financial services, submitted today, we say that we have not identified any specific products, services, methods of mortgage distribution or other aspects of the industry that are particularly associated with poor outcomes for older borrowers. But there is clear evidence, we believe, that some reforms – even on a relatively modest scale – could help older people. 

A recent example was the FCA’s decision allowing providers to switch off the need to assess affordability for borrowers wanting to take out a lifetime mortgage which starts with interest payments, but can later be converted into a roll-up loan. The reform introduced by the FCA addresses an aspect of the changes we called for in our retirement borrowing report, published last December.

Although this looks like only a small measure, it is significant because it allows the lifetime mortgage market to develop more sensibly to meet the needs of consumers. The effect of the FCA’s reform is to remove an unnecessary barrier to the provision of safe, worthwhile and consumer-friendly lifetime loans.

Clearly, innovation has the potential to widen choices for older borrowers in the mainstream mortgage market. And this could extend not just to product features but also to the way in which mortgages are distributed. Our response argues, for example, that many older borrowers could benefit from the digitisation of services and mortgage distribution channels. Conversely, however, we do not believe that the financial services industry should exclude people from being able to take out products based on whether they do, or do not, feel comfortable in using a digital platform.

More generally, we and our members remain committed to ensuring that products and services meet the needs of older people. In pursuit of this aim, we have contributed to a range of cross-industry initiatives, including the Money Advice Service’s steering group on older people in retirement, the British Bankers Association’s vulnerability task force and the FCA’s ageing population project.

Removing barriers for older people

Our own work on how the mortgage market could better serve older people has focused on both borrowing into and in retirement. We set out our findings at the end of last year in two reports, Retirement borrowing: Reality, perceptions, projection and potential and Consumer demand for retirement borrowing.

One key finding of those reports was that only a small number of advisers are able to help older borrowers with residential and lifetime mortgages, while also offering financial advice. This is partly because advisers are supervised under different regulatory regimes for these different activities. This compartmentalising of financial advice can also be reinforced by the way in which distribution has evolved over time of specific types of products, which have come to be associated with specific types of firm. 

In some ways, the issues raised have become more complicated as a result of the introduction of pension liberalisation rules last year. Older consumers, in particular, may now need advice about both mortgages and pensions, and how they affect each other. But there are few advisers qualified to cover both areas. So, consumers may be forced to seek advice from two different professionals before being able to decide what to do.

There are other examples in which the way markets have evolved over time means that they do not always work as well as they might for consumers, whose needs are also changing.  In the lifetime mortgage market, for example, older people are more likely to consider consulting their families and using the power of attorney. But this is less likely to occur in the mortgage market.  So, there is scope for more sharing of best practice. This could provide better support for the customer, and perhaps a better experience for both lender and borrower alike.

Regulatory barriers

Prudential requirements may also unintentionally create barriers for firms seeking to develop financial services markets. We therefore recommend closer co-ordination between the FCA and the Prudential Regulation Authority to consider these issues and whether some liberalisation might help, while still maintaining regulatory standards.

Another concern is that European requirements to hold capital under the Solvency II directive could restrict the availability of lifetime mortgages and the funding of other products that could help older borrowers. We would like to see scrutiny of the rules for holding capital to seek to ensure that they do not unnecessarily restrict the supply of lifetime mortgages.

The effect of pension freedoms

Following the introduction of pension freedoms last year, we support consumer groups in calling for an expanded role for guidance currently provided by the Pension Wise service. We have volunteered to help prepare scripts for consumers and to support the service in other ways, so that those using it can better understand – and take into account – mortgage and housing debt issues when making decisions about what to do with their pension savings. We would also like to see the scope of the pension advice service expand, so that users have a better understanding of all their housing options.

Similarly, advisers in the mortgage market may be able to help their customers more if they had a better understanding of the evolving needs of borrowers as they get older. When helping a younger customer considering taking out a loan that will extend into retirement, for example, advisers need build into the picture the fact that borrowers are likely still to be adding to their pension pot. So, they will need to consider future pension contributions and investment returns. When borrowing in retirement, however, the customer is likely to be drawing from pension savings, and so is in quite a different set of circumstances.

To help lenders develop products that might better suit the needs of consumers, it would be welcome to have more data on how people are responding to the pension freedoms introduced a year ago. Of course, this will only emerge over time, and perhaps become clearer again as consumers adjust to the range of choices available to them.


Our submission recognises and supports the need for greater collaboration between different strands of the financial services sector, consumers, regulators and government to improve the range of options for older borrowers. We have made some good progress but there is much more to do through sharing best practice, identifying emerging trends, and developing new products and ways of distributing them.

We will continue to support the lead of regulators and the government in seeking to achieve a better outcome for older people. The UK’s ageing population presents a major and growing demographic challenge. But the commitment of the lending industry to work closely with others can deliver better outcomes for consumers.