Chris Flowers: The Generation Game

To communicate equity release’s wider opportunities and benefits, writes Chris Flowers, providers and advisers need to think about how best to engage not only its usual target audience but also their families

The situation in Britain regarding intergenerational wealth makes for a fascinating dynamic at present – and one that creates a mixture of opportunities, risks and considerations for the later-life lending sector.

The over-50s in Britain currently represent a third of the population yet hold around 80% of total consumer spending power which, when allied to the fact total housing equity among that same age group comes to a grand total that exceeds the total GDP of Italy, highlights the power the current target audience of the equity release sector has.

It is a situation that stands in stark contrast to the generation that now increasingly represents the adult children of those most likely to take an in interest in equity release, namely millennials.

With a demographic timeline that has led to many coming of age at the height – or trough? – of the economic crisis, the loss of opportunities and associated wealth, as well as the automation of many tasks, have seen many stifled both professionally and financially and have left them in a position where they are the first generation in modern memory to wind up worse off than their parents.

This has manifested itself in a number of ways. Research from 2013, for example, showed conclusively that in real terms millennials experienced median earnings that were 43% less than Generation Xers enjoyed in 1995 at a similar point in the demographic’s development and, by extension, this has impacted massively in global habiting patterns among developed nations.

In Japan, for example, research conducted in 2015 showed roughly half of millennials aged 20 to 29 still lived with their parents. By 2016, on the other side of the Pacific, multigenerational households were the primary living arrangement for the first time in modern US history.

It is a situation that has manifested itself in Britain too, compounded by rising house prices that have even left most starter homes out of reach for most first-time buyers – who in turn are increasingly reliant on inheritances and familial assistance to get onto the property ladder.

This used to be something that was readily solved by downsizing but recent research has shown that those in later life are fast falling out of love with the idea, deterred by poor housing options and overpriced property. Half of people surveyed last year on the question claimed they would no longer consider it an option in later life – a year-on-year increase of 18%.

As a result, parents and grandparents admit to having to accept a lower standard of living to help provide assistance to family members, with nearly one in fi ve resigned to the fact they will be – or already are – worse off as a result of providing financial assistance to loved ones. Additionally, 10% said they felt less financially secure, with 4% even postponing their own retirement as a result of helping the property ownership aspirations of those dear to them.

Underused medium

With average contributions from over-55s households leaving them £18,000 worse off, it is unsurprising the later-life lending sector is seeing an increase in the number of people using gifting as a primary use of the equity released through their homes – recent figures put it as high as 17%. Nonetheless, while equity release could provide a potential solution to those looking to help family buy property, it arguably remains an underused medium.

Could educating families as a whole about the benefits and opportunities afforded by equity release be the answer? Most in the sector would already attest that opposition to equity release comes not from those in later life but, rather, those close to them.

It is already recommended that families are involved during the application process when someone takes out a new plan. As such, could expanding that remit to not only ensuring they are aware of how a relative entering into equity release could affect them – through inheritance and so forth – but could also potentially benefit them, help convince sceptical family members?

Intergenerational wealth, and its distribution, is arguably now entering a unique phase within British society and it presents a chance for the later-life market to continue its recent sustained growth. It is only possible, however, if the sector gives thought to the best way to engage not only its usual target audience but also their families in an attempt to communicate equity release’s wider opportunities and benefits.

Chris Flowers is head of distribution at Pure Retirement