“Today’s paper from the regulator feels like a landmark moment in the debate around intergenerational wealth inequality. The Financial Conduct Authority has marked the financial divide between millennials, baby boomers, and generation X as one of its key priorities and is now putting concerted effort into delivering on that priority. This is the first time in recent memory the authority has placed intergenerational issues front and centre of its plans and challenged the industry to do more on this issue.
“Not many of these findings are new, however. Every young person knows that house prices are out of reach for many people, and working parents up and down the country will testify that high living costs and financial stretch mean that setting money aside for the future is a bonus rather than the norm. Still, having it all laid out in pages and pages of inequality does shed light on the extent to which the intergenerational contract is at the cusp on being broken and perhaps more so than we even realised. The FCA analysis of the ONS Wealth and Assets Survey shows that those aged below 60 are worse off than people of the same age 10 years earlier, with those aged 40 to 44 in the worst position (chart below).
“It’s also shocking that despite auto-enrolment the FCA has found that half of all 20 to 29-year-old have no retirement resources, and of those aged 30 to 39, half have less than £30,000 saved. Now these figures are based on data collected between 2014 and 2016 from the ONS so the situation may not be as dire as that today. However, we do have the problem that while auto-enrolment is boosting pension savings, it is also making people complacent about it when in reality the contribution levels will not lead to enough to sustain them for a 17 year retirement that the FCA has suggested as the norm for the millennial generation.
“The real question is that having acknowledged these challenges, what can the FCA and the financial services industry do about it?
“The financial challenges of younger generations are the by-product of an enormous range of factors – low interest rates, flat wage inflation, rising house prices, the student debt burden, and the hangover of the financial crisis to name just a few. Those are issues rooted in housing policy, economics and education policy, which are outside the regulator’s influence. But today it is putting responsibility on the industry to come up with at least some of the answers to the challenge of the intergenerational wealth divide.
“In fact innovation seems to be the word of the moment for the regulator, who used it over 20 times throughout the paper when it was discussing solutions and take aways from its findings. Innovation is undoubtedly important, but it is one of those words that gets bandied about so much that is losing meaning. Concrete plans are going to be crucial if this issue is actually going to be addressed.
“The mortgage market is an obvious candidate for creating a practical plan. Rising house prices have precluded many people from the housing market and that means that even those than can get on the ladder are doing so much later in life. We have already seen lots of government policy measures to try and address this, including things like the Lifetime Isa and Help to Buy, but the issue still persists. The question now is whether regulation of the mortgage market can be reformed to unlock lending for those that need it, both when they are trying to get on the ladder, but also when they want to realise equity in their home in later life. Likewise, when it comes to funding social care for older generations, we have seen politicians fail to come up with effective answers, but there may be an opportunity for the FCA and the industry to identify ways to better support later life care funding despite the procrastination in government.
“There will be questions about whether the financial services sectors is entitled to address these issues. After all, many of the financial challenges faced across each generation are rooted in the financial crisis. With that in mind, it is really important to recognise that there are both opportunities and limitations here. The financial services regulator cannot change government policy on social care funding, alter its tax policies, or build more houses. But it might be able to identify areas where small changes in the regulation of the financial could unlock new opportunities to support every generation to manage their own financial challenges. At the same time, government policy will be required to address some issues that the industry cannot fix on its own.”