Nine out of ten workers are ‘financially sleepwalking’ into retirement, reveals new research.
Carried out by deVere Group, the research finds that 89% of all new, working age clients did not realise how much money they would need in order to fulfil their own retirement ambitions before they began working with an independent financial adviser.
More than 750 new and potential clients in the UK, the US, Australia, South Africa, Hong Kong, Spain, Qatar, France, Germany, and the United Arab Emirates participated.
Of the findings, Nigel Green, founder and CEO of deVere Group comments: “It is very alarming indeed that nine out of ten workers are financially sleepwalking into their retirement.
“The poll concludes that the overwhelming majority simply do not know just how much they will need to save during their working lives to fund the retirement they desire. Not knowing how much they will need for something as important as funding their retirement is worrying.”
He continues: “It’s particularly concerning in this day and age because we’re all living longer meaning the money we save has to last longer. Also, because governments are unlikely to offer the same level of support as they have done for generations before due to an ageing population and shrinking workforces; because living, health and care costs will increase significantly; and because company pensions are less generous, if they exist at all.”
How much people need to be putting aside now, and in the years to come, in order to be able to enjoy the retirement they want for themselves and their families does vary from person to person, of course.
However, as Nigel Green observes, there is a consistent theme: “Before they have an initial meeting with an adviser, the vast majority of people underestimate how much they need to be putting aside for their retirement. This is the case across all incomes, working age brackets and nationalities.”
He adds: “People are typically shocked when it is revealed how much they should be saving now to realise their own retirement ambitions later on. They have usually considerably underestimated the money they will need.”
The deVere CEO concludes: “Despite the shocking poll, there are always methods to plan and maximise retirement savings at every stage of your working life.
“But it cannot be stressed enough that the earlier you start your retirement planning strategy, the easier the journey to hitting your goals will typically be. I would urge people to take their heads out of the sand and get informed.
“By putting in place a clear, workable plan, you’re laying the foundations to have a comfortable and financially secure retirement.”
(Source: deVere Group)
Online research from Equifax reveals over half (51%) of Brits under 45 years old would be interested in banking products or services from technology giants like Apple, Amazon or Google. Of those, 45% said that products or services like loans, credit cards or current account from these technology companies would only appeal to them if they offered better value than their existing bank.
Across all age groups, the level of interest in banking products from leading technology firms falls to 40%, with over a quarter (27%) of Brits stating they would rather use their existing bank as they’re more familiar with them.
Jake Ranson, Banking and Financial Institution expert and CMO at Equifax Ltd, said, said: “The recent announcement that Apple is joining forces with Goldman Sachs to launch a consumer credit card highlights how tech companies plan to shake up the banking industry, creating products and services to compete against the big high street banking names as well as newer digital entrants.
“Although a sense of brand familiarity pins many people to their current bank, there’s an appetite for new products and a desire for alternatives that can offer something genuinely different. The tech giants have a loyal brand following in their own right, if they can combine this with a competitive product offering we’ll see an interesting shift in dynamics as the fight to attract customers heats up.”
(Source: Equifax)
From Baby Boomers, to Millennials, to Generation Z – as a society we’ve become all too accustomed with categorising people based on the year they’re born in. For banks in particular, it’s long been tradition to segment by age and build campaigns that target customers accordingly. Here Karen Wheeler, Country Manager and Vice-President at Affinion UK, explains to Finance Monthly why banks shouldn’t follow this tradition.
But, have they become too hung up on age groups? We’re now in an era in which we’ve never had more access to rich customer data, which should – in theory – mean that banks can better understand their customers’ behaviour, preferences and expectations. However, according to research by Vanson Bourne and Sitecore, 64% of UK consumers still feel like brands make assumptions about them based on single interactions alone.
Consumers are now easily frustrated by a business that doesn’t seem to understand them. So, what can banks do to prove they have a deep understanding of what their customers really want?
It’s time that banks shifted their thinking and took a smarter approach to segmentation. Basic grouping by age or gender is no longer accurate enough and developing a “segment of one” is key. Here’s three reasons why banks need to look beyond basic segmentation to build better relationships with customers.
1. Broad brushing generations can back-fire
There used to be a predictable life pattern, but now you can get married, have a baby, buy your first house or travel the world at almost any age. The lines are blurring, and things are becoming more fluid. It’s now recognised that just because two people are born in the same age bracket, it doesn’t mean they share the same experiences, needs, attitudes and desires in life.
For example, a 31 year old woman who is married and living in the country with school age children, has very different needs to a single, 31 year old women with a flat share in London. At best, irrelevant offers based on outdated life patterns can be a mild nuisance to customers, but at worst, making assumptions risks causing offence and can backfire on the brand.
Air France recently faced backlash after announcing that it will be launching ‘Joon’, an airline for millennials. Passengers of the airline will be served by cabin crew wearing “basic chic” uniform including white trainers, blazers and ankle-length trousers. Experts have excused the airline of stereotyping millennials and for assuming that every consumer born between the years 1981 and 2000 act and think the same.
2. Personalised offers have more impact
In the past, life stages were more fixed by age, but as society changes and with so much data now available, banks have the ability to build a much more holistic view of their customers which can enable personalised, relevant interactions – giving people what they like most, at the right moment in their lives.
A good example of a bank that’s already doing this well is Barclays. Its “Life moments” strategy is built upon carefully targeting customers with appropriate financial products and services as they approach new life stages, such as having a baby or buying a car – regardless of their age. More recently, Barclays announced it will offer recent graduate job interviewees free overnight accommodation in London, Birmingham and Manchester, after its research found that more than half of graduates surveyed said they had not applied for a job because of the amount it would cost to travel to the interview. By targeting this life specific stage, it positions them as a bank that not only has the best interests of graduates at heart, but a source of help during a time of need.
3. PSD2 is coming
2018 is set to be a game-changing year for banks. As the PSD2 (Revised Payment Service Directive) becomes implemented across the EU, banks’ monopoly on their customer’s transaction data and payment services is about to disappear. The new EU directive opens the door to almost any company interested in eating a bank’s lunch.
Before it’s implemented, there’s an opportunity for banks to use their ‘first mover advantage’. They shouldn’t wait for fintechs, AISPs or PISPs to encroach on their customer relationships, instead they should look at their own platforms and how they interact with their customers. Investing in tactics like better segmentation could improve and consolidate relationships at a time when it’s never been more important.
Many loyalty programmes haven’t worked for banks in the past. But is this simply because they’ve taken an outdated approach to UK consumers and not been personalised enough? Next generation customer engagement is all about tackling this with personalised content and interactions across more levels than ever previously possible. It’s about understanding the intangibles of human motivation to create more rewarding journeys, recognising the value of different rewards to different people and utilising new ways of collecting, storing and making sense of the data that’s generated.
If banks are to become truly valued in their customers’ lives, demonstrating an understanding of their priorities and anticipating their needs is key.
As part of Finance Monthly’s brand new fortnightly economy and finance round-up analysis, Rhys Herbert, Senior Economist at Lloyds Bank, looks at some of the big issues being discussed this month.
June’s surprise drop in inflation to 2.6% – its first decline since last October – confounded economists.
The consensus forecast, and our own, was that inflation would remain unchanged at 2.9%.
The size of the miss raises the question: why did we get it so wrong? More to the point, is it possible that May’s 2.9% outturn marked the peak?
The first question is easier to answer. The fall (and miss) was largely concentrated in the prices of energy, food and recreational goods (notably toys and computers).
The latter alone deducted 0.1% from June’s inflation rate. To some extent, this was expected as it was outsized price gains in this category that was responsible for the sharp jump in inflation in May.
Over the quarter as a whole, inflation was pretty much bang in line with the Bank of England’s May forecast.
So, could consumer price inflation have peaked? It’s possible if the economy and labour market were to deteriorate sharply from here. But we doubt it.
Cost pressures continue
Retailers continue to face significant cost pressures - primarily resulting from the fall in the pound.
Over the coming months, this pressure is likely to continue. Many firms are only now starting to feel the full force of the fall in sterling, as currency hedging strategies put in place ahead of last June’s sharp drop expire.
Furthermore, changes in business rates, the rise in the National Living Wage and the introduction of the Apprenticeship Levy are also pushing up costs.
We expect these forces to boost inflation over the coming months.
A rise above 3% would require the BoE Governor to write an open letter to the Chancellor explaining the reasons for the overshoot and the measures the Bank intends to take to bring it back down.
Autumn overshoot
Mark Carney shouldn’t put his pen away just yet, as we predict the 3% threshold will still be breached in the autumn.
Thereafter, inflation should ease back a little as some of the base effects from rising import prices and other cost increases dissipate.
That said, we, and the Bank of England, predict inflation will remain above the government’s 2% target for at least another two years.
As we have noted before, the extent of the overshoot will depend on how wage growth – or more particularly unit labour costs – respond against a backdrop of weak productivity and a tightening labour market.
If wage growth and unit labour costs start to accelerate more sharply, the inflation overshoot would be far larger and more enduring.
Population pessimism
The recent release of updated UK population projections gives us the opportunity to examine an important longer-term issue, the implications of demographic trends.
While the broad themes are familiar – the population is rising and ageing – the numbers are nevertheless striking.
They also highlight the justifiable concern around the long-term sustainability of UK economic growth and the likely wider pressures on society and the public finances.
According to the Office for National Statistics (ONS), the UK population reached a record high of 64.6mn in 2016. It is projected to rise to 70mn by 2026 and to 74mn by 2039, driven by a combination of natural growth and migration.
If the rise were due to an anticipated increase in the number of young and those of working age, it would be good news. But it isn’t.
By 2036, the number of people aged 65 years or above is projected to rise from 18% to 23.9% of the total population.
Increasingly aged
In other words, around 75% of the rise in the UK’s population over the next twenty years will be driven by those reaching or exceeding retirement age.
As a result, the old age dependency ratio (OADR), which is the ratio between the number of people aged 65 and over and those aged between 15 and 64, looks set to rise sharply.
The higher the OADR, the greater the potential burden on the working population. Last year, the OADR was estimated at 28%. By 2036, it is projected to rise to 41%.
The anticipated rise in the OADR is all the more striking as the ONS’s projections allow for continued growth in net migration – which is mostly by those of working age.
Prior to the EU referendum, there seemed little reason to question this, but last year, things changed.
Immigration impact
Net migration posted its biggest annual fall for more than twenty-five years in 2016 – dropping from 334k to 249k. This reflected, in roughly equal measure, lower immigration and higher emigration.
While we would caution about reading too much into one year’s data, the direct and indirect consequences of the EU referendum result is likely to have had at least some bearing on this.
It appears to support anecdotal evidence that uncertainty over Brexit and the fall in the pound are both discouraging new immigrants and prompting some existing foreign workers to leave.
This is a particular issue for some key sectors, such as retail, healthcare and construction.
If net immigration stalls, population growth over the coming twenty years is likely to be far lower than the ONS projects.
But this may be small comfort if, at the same time, it leads to an even sharper rise in the UK’s OADR, with all the adverse implications this would bring.
