The House of Lords and FCA are both looking at ways to address financial disparity between generations. Financial advisers may need to take note
- A report released by the FCA showed that patterns of wealth accumulation and decumulation have changed profoundly over the last decade
- While many focus on millennials, it may be that Generation X faces the toughest slog.
- Retirement as we know it today looks like a less realistic prospect for future generations.
Intergenerational unfairness is a phrase for our times. It turns out millennials are not impoverished because they spend all their money on avocado toast, but because they have vastly higher housing and other living costs, to be met with lower salaries. In turn, boomers are not wealthy because of their frugal attitude to saving, but because they have been beneficiaries of property price inflation and defined benefit pension schemes.
The problem has now drawn the attention of both the House of Lords and the FCA. A report released by the FCA showed that patterns of wealth accumulation and decumulation have changed profoundly over the last decade. Different generations face varying challenges not only because their different life stages, but because of strikingly different economic circumstances.
The report showed the changes in just ten years. It compared the period 2006 to 2008 to 2014 to 2016, finding that people of working age had less total wealth compared to people of the same age 10 years earlier, while those at retirement age had significantly more wealth in real terms. The median person starts accumulating property wealth 4 years later. In particular, it found, Generation X – those born in the late 1960s and 1970s - are more financially stretched than before.
This is an important consideration. While many focus on millennials, it may be that Generation X faces the toughest slog. As Tom Selby, senior analyst at AJ Bell, points out, many will have just missed the boat on DB and will only benefit from auto-enrolment in their 40s, meaning they will face an uphill task in building a decent pension pot. They may also be facing significant care costs but won’t benefit from babyboomer wealth trickling down.
Across the board, it is getting tougher for younger generations to save. Retirement as we know it today looks like a less realistic prospect for future generations. This is likely to shape their preferences. Attitudes towards retirement are becoming more flexible and financial planning solutions will need to move with them. The FCA said an area of growing interest is how financial advisers can help people share family wealth between generations.
Many advisers will get their careers out of the boomers and retire as comfortably as their clients. However, for those with aspirations to support the wealth transfer between generations, or advise younger generations, they need to address this changing market.
