We need to talk about later life lending...

Driving up the M5 the other day I was listening to MoneyBox on Radio 4 discuss the subject of the state of savings in the UK and interest rates.

According to latest research and figures supplied by the Bank of England, something like ￡1 trillion pounds is sitting in savings accounts earning 2% or less in interest with around a quarter of that earning zero - literally nothing.

With savings rates of more than 5% now available (and even some 'easy access' accounts offering well north of 4%) this is staggering.

But why? It's not as though it can have escaped anyone's attention that interest rates are now much higher than they were two or three years ago. Why would anyone simply 'refuse' to switch their cash from earning close to zero in interest to an account paying 4% or more? A trillion pounds earning 2% versus a trillion earning 4% gives us all at least twenty BILLION reasons to take action.

The answer was depressingly familiar: apathy and confusion.

Voxpops recorded with savers plus input from listeners revealed that most people were perfectly aware that their savings could be earning more interest, but they either couldn't be bothered with the hassle of moving it around or (more often) were a little bamboozled by the whole process of opening up new accounts, moving their money around and ensuring they got the right sort of account for their needs - whether that be a high interest account that might lock away money for longer, or easy access that offers more flexibility but with a lower rate of return.

It got me thinking about later life lending and how much harder the industry needs to work in order to educate consumers and facilitate better outcomes in later life.

After all, opening up a savings account is - arguably - one of the simplest transactions you can undertake in the world of financial services. So if people get confused by that process, what hope is there of more consumers engaging (never mind navigating) the complex world of later life lending?

There is something like 2-3 trillion pounds of housing wealth owned by the over-50s in the UK and a good chunk of that could be accessed and leveraged to create better financial outcomes in retirement. But only a fraction of that wealth is currently being used each year, demonstrating that - just like the savers of the UK - older homeowners are at best apathetic towards later life lending or, at worst, are confused and concerned about the whole concept.

Whether it be past mis-selling controversies that have sullied the waters, the vast array of product options now available, the potential risks versus rewards or simply the perceived complexity of the application process itself, it is clear that the industry needs to be far more proactive in helping consumers understand their later life lending options and to take the most appropriate course of action.

That's why I was pleased to see the recent launch of Air's 'Comprehensive Conversations' campaign, designed to help promote wider discussions of all later life options with consumers.

It puts me in mind of a campaign I helped spearhead in a previous role at the Fixed Term Annuity provider, Living Time, more than a decade ago. The 'Offer More Options' (OMO) campaign was designed to help promote a wider discussion with retirees about ALL of their decumulation and income options in retirement. At the time of launching this campaign, more than 90% of retirees ended up converting their pension fund into a lifetime annuity - a one-off, irreversible decision that was not always the optimal solution for them - despite the fact that other income options were available.

Why did 9 out of 10 retirees do this even though it could mean ending up worse off in retirement? You've guessed it: apathy and confusion.

Similarly, today the most common form of later life lending is equity release - in the form of a lifetime mortgage - and most lifetime mortgages end up rolling up the interest for the term of the loan.

It's fair and only right to point out that the industry has evolved quickly over the past 5-10 years to introduce new options that give clients the ability to service interest, repay capital and keep borrowing levels down through drawdown etc.

But with a vast array of lending options now available - later life mortgages, RIOs and new hybrid lifetime mortgages, for example - the 'Comprehensive Conversations' campaign is well-timed as it is vital that advisers discuss ALL later life options with clients to ensure that roll-up equity release does not become the embedded, default option and the lifetime annuity equivalent of the later life lending market.

Of course, advisers need as much help as consumers in terms of getting to grips with the options available and how these can be incorporated into the advice process. Lenders, advisers, regulatory bodies and all of the associated stakeholders in this market need to do more to bring greater transparency and access to this market, more education and greater levels of support to meet the growing needs of today's later life consumer.

One way or another, we all need to start talking about later life lending.