As we reach retirement our need for protection decreases, right? Wrong. Ronnie Martin explains how changing lifestyles mean the over-50 market is growing
It has long been perceived in the financial services world that while the silver market may have presented golden opportunities for pensions and investments, the opposite applied to protection. It was assumed that by this age individuals had either already taken action to address protection needs or those needs would be reducing. They would have also paid off their mortgages and only have very low levels of residual debt outstanding. Their children would have left home too and contributed to these declining needs.
While this may be true for some of this sector, for others today's lifestyle changes mean they have fresh protection needs. The traditional view of people in their 50s as empty nesters heading for retirement with no protection needs is not necessarily true any more.
The late 1990s and the first couple of years of the new millennium was a period when many people aged 50 and over with successful working lives behind them were happy to take offers of early retirement from employers keen to offload 'expensive' employees on to pension funds. While this trend may have now slowed, there are significant numbers of individuals already in that group.
Many have set up their own businesses using redundancy payments and tax-free lump sums from pension schemes as finance. These second careers could generate protection needs for both the business and the family. The individuals no longer receive the death in service employee benefits they may have enjoyed during their previous career. Running their own business could give rise to partners or directors having to share protection needs.
Family commitments
Family protection needs could also be ongoing if children go on to higher education or perhaps stay in it longer than initially planned.
With the increased incidence of divorce and remarriage, there may be commitments to first families and extended families running alongside each other. There may also be other protection needs to underpin maintenance payments in the event of death or serious illness.
Some of these people may have arranged ongoing cover under 'continuation options' if these were available under their employer's group life scheme. However, those who did so will undoubtedly be in the minority.
As a result, advice could be much in demand for both family and business protection. Advisers' expertise is vital for business protection, as it involves an understanding of legal implications, taxation and trusts to complement any protection product solutions.
A strong influence on protection requirements is always the housing market, particularly the purchase price of residential property. However, the average age of first-time buyers, which was recently shown by the National Office of Statistics to be 34, also has an impact on protection needs. With purchasers stepping onto the property ladder in their mid-30s we will witness protection requirements extending well into the silver age as these individuals make their steady progress up the housing ladder.
Another societal factor affecting protection is the increasingly older age at which couples are starting their families. This is partly driven by the increasing age of first-time buyers following through to the time the first child is born. Subsequent life stages move up the age scale as a result.
In the budget, the Chancellor indicated his interest in lenders developing long-term fixed rate mortgages. While there are mixed views on the likely popularity and attractiveness of these loans, older buyers using such a long-term loan would need protection beyond their 50s.
Many grandparents today help their own children by performing the role of child minder while both parents work. This raises some protection issues. For example what if a grandparent died or suffered a serious illness and was no longer able to look after the children? The parents might have to pay for a registered child minder instead. So relevant cover on the lives of the grandparents might well be appropriate. Longevity also means that people in their 50s and beyond may have elderly parents perhaps living with them, who are dependant on them not only for their care but also financially. Protection may therefore be needed in case the breadwinner dies or is unable to work to continue to provide for these elderly parents.
High earnings
Income protection may also be a relevant need for this age group. While the needs for family protection life cover and or critical illness will be impacted directly by whether or not there are dependants, income protection needs are not solely influenced in that way. People in the 50 plus age group are likely to be enjoying perhaps the highest earnings at any stage of their career. Their lifestyle will inevitably reflect this. So protecting income against inability to work due to long-term illness or disability may well be one of their highest protection needs.
It is important to remember that should protection needs arise for people in this age group due to changes such as marriage, guaranteed insurability options on existing policies can provide a useful safety net. These can be exercised typically up to age 65 on whole of life policies.
Making a will should be the cornerstone of financial planning for the vast majority of people. However, the reality is the opposite as the number of people who die intestate shows. While clients in the over 50 category should have already taken action as far as wills are concerned they can be as dilatory as the young.
The laws of intestacy prescribe exactly what will happen when someone dies without having made a will. The circumstances when a surviving spouse would automatically be entitled under intestacy laws to all of their deceased spouse's estate are very limited indeed. In reality this only happens when personal assets left by the deceased are worth more than £125,000 and there are no children and no living parents, brothers, sisters, nephews or nieces.
Dying without a will could mean that not only are the family's wishes not likely to be met but the outcome could be inefficient from a tax viewpoint.
The increase in divorce rates, whether followed by remarriage or not, should result in advice to readdress an existing will. For example, marriage revokes a previous will, unless it was prepared in anticipation of marriage and divorce cancels any benefits under a will to a former spouse again unless it is clearly stated that divorce would not affect any entitlement.
With mortality improvements we can all look forward to longer lives. At the same time the changes in life stages and life patterns mean the period during which protection cover is required is inevitably likely to extend. The 50 plus market today provides advisers with a golden opportunity to address a wide range of protection needs.
Ronnie Martin is protection director at Legal & General
COVER notes
• Lifestyle changes mean more people over 50 have families to support and are in unsteady employment.
• High house prices mean the next generation of homeowners may still have a hefty mortgage in their 50s.
• Making a will and Inheritance Tax planning continue to be important advice-driven areas for the over 50s market.
