Age UK – supplementary written evidence (FEX0094)

All rights reserved. Third parties may only reproduce this paper or parts of it for academic, educational or research purposes or where the prior consent of Age UK has been obtained for influencing or developing policy and practice.

This submission may be published by the House of Lords Select Committee on Financial Exclusion.

David Steele

Policy Manager Financial Services

Lucy Malenczuk

Senior Policy Manager

Age UK is a charitable company limited by guarantee and registered in England (registered charity number 1128267 and registered company number 6825798). The registered address is Tavis House

1-6 Tavistock Square, London WC1H 9NA.

Summary

1. The UK’s population is ageing.  Older people are a highly diverse group and in many cases those experiencing financial exclusion will have much in common with other age groups (for example, a low income, disability, digital exclusion).  However some aspects of exclusion are either unique to the older population or significantly more prevalent among them and therefore it is important to look specifically at how financial exclusion affects older people.

2. In particular, digital exclusion or being a less confident digital user and living with multiple, overlapping impairments may disproportionately affect older consumers and may require different solutions to those used by younger consumers, or adaptations to technological solutions.

3. Age UK usually sees financial exclusion caused by one of a combination of:
1. mainstream financial services that do not meet the needs of older consumers e.g. banking services move online without suitable alternatives, meaning that older people who are not confident internet users are excluded from directly participating in the system and can only access it through family and friends;
2. financial services discriminate directly against older consumers, e.g. in insurance and mortgage lending; or
3. older people who do not have sufficient financial capability to be adequately included, this could be because of changes in the external world, changes in their own situation, low confidence or an inability to access information and advice.

4. Age UK defines financial inclusion as access to the financial services and products needed to safely, conveniently and affordably access and manage money and to participate fully in society.  Changes to the way that essential services and bank accounts are accessed and recent pension reforms have increased complexity and placed more responsibility on the individual consumer.

5. We set out detailed proposals for action in our main response below, however we would prioritise the following:

• Place a statutory duty on the Financial Conduct Authority (FCA) to promote financial inclusion as one of its core objectives, as recommended by the Financial Inclusion Commission. This duty should include a mandate to require financial service providers to meet designated standards in relation to access and customer service. We identify the lack of safe, convenient and affordable access to payment and money management services as one of the first issues the FCA should address under such a duty.
• High level attention within Government on financial inclusion
• Improve access to information, guidance and advice
• Require inclusive design of products and services
• Consider financial inclusion during policy change
• Review the law on age discrimination as it relates to financial services
• Maintain access to essential services for people who are not online and launch a refreshed digital transition strategy.

The older population

6. In mid-2015, the number of people in the UK aged 65+ stood at 11.6 million, with 3.1 million over the age of 80.[1] These numbers are forecast to rise to 18 million and 6.3 million respectively in 2039.[2] While people aged 65+ spend over £145 billion per year,[3] and wealth has an upward skew by age, there is a high degree of inequality among the older population. According to DWP, around half of pensioners live on incomes of £11,000 or less per year,[4] a quarter of people aged 65+ have net financial assets of £5,000 or less and six per cent of people aged 65+ are reported as having net financial assets less than zero (ie their liabilities are greater than their assets).[5] Within the older population there will therefore be many different forms of financial exclusion.

What is financial exclusion? (Qs 1-4)

7. In Age UK’s view, financial inclusion means access to the financial services and products needed to safely, conveniently and affordably access and manage money and to participate fully in society. 

8. On this definition, the minimum requirement for older people to be financially included is to have sufficient income to live above the poverty line, to be able to safely, conveniently and affordably access essential financial services and utilities, not to be discriminated against on the grounds of age and to have a sufficient level of financial capability.

9. We are therefore interested, for example, not just in whether someone has a bank account, but whether they are able to operate that bank account appropriately. Further, the extent of what financial services are ‘essential’ will change over time.  For example, the recent pensions reforms now make it essential that people with defined contribution pensions who do not choose an annuity have access to affordable and appropriate financial information, guidance and advice throughout their retirement.  Much of our evidence in this submission focuses on the more traditional understanding of financial exclusion as relating to ability to access transactional banking services, however we add some specific comments on new and emerging risks to financial inclusion, especially connecting to managing income and assets in retirement.

10. We note that it can be difficult to define financial exclusion by a set of objective criteria.  For example, Anne may choose to use a Post Office Card Account to receive benefits and withdraw the total in cash each week.  This is likely to be less cost effective and on some levels less convenient than using a conventional bank account with direct debits and other payment methods.  If Anne is aware of the other options and has chosen to continue to operate in cash using the Post Office because she values the face to face interaction and prefers to continue to use the budgeting systems she has always used and is able to conduct all the activities and access the services she needs then we may not see her as excluded but as having made a choice and having access to services which meet her particular needs.  If on the other hand Anne is unable to trust banks because of previous bad experience, has tried to open an account but has been told she does not have adequate identification, has tried direct debits but ended up with unexpected bills she could not afford or has no way of safely drawing cash without relying on somebody else, then we may see her as excluded.

Who are the financially excluded and how many older people are affected? (Q2)

11. Individuals’ needs, opportunities and abilities will change throughout their lifetime and so older people may move into and out of exclusion.  Further, as longevity rises, complexity increases and there is more emphasis on personal responsibility, we might expect exclusion to increase, including among groups who previously managed well.

12. Most existing research into financial exclusion has focused on individuals who are not using financial services rather than on those who may be using them but with difficulty.  On this measure financial exclusion has been found to be significantly associated with age, income, qualifications, ethnicity, housing tenure, source of income and household composition. Specifically, being aged 85+, having an income in the lowest quintile, ‘no qualifications’, BAME ethnicity, social or private renting, benefit income, poor health and living alone are all indicators of a higher likelihood of financial exclusion.[6]

13. A significant number of older people in the UK continue to be financially excluded, despite some improvements over the last fifteen years such as the reduction in pensioner poverty and the wider availability of basic bank accounts. Age UK estimates that at least six hundred thousand older people are financially excluded, depending on data source and definition, as shown in Table 1.

Table 1: Indicators of financial exclusion of older people in the UK

Sources: See Appendix.

Note: The above numbers are overlapping rather than additive. Being drawn from different sources, it is not possible to identify the exact number of individuals affected by multiple measures of financial exclusion.

What are the causes of financial exclusion? (Q1)

14. We usually see financial exclusion caused by one of a combination of:

a.              mainstream financial services that do not meet the needs of older consumers e.g. banking services move online without suitable alternatives and older people who are not confident internet users are excluded from directly participating in the system and can only access through family and friends;

b.              financial services discriminate directly against older consumers, e.g. in insurance and mortgage lending; or

c.              older people who do not have sufficient financial capability to be adequately included, this could be because of changes in the external world, changes in their own circumstances, low confidence, or inability to access information and advice.

Age discrimination in access to financial services

15. Age UK continues to hear about cases of older people excluded from access to certain financial services (principally mortgages and insurance) on the grounds of age, though there have been some positive changes in 2015-16 especially in the building societies sector, where some building societies have removed age limits altogether and others (including Nationwide, the largest) have raised their upper age limit. The ABI/BIBA/HMG insurance signposting agreement appears to have had a positive impact on the availability of insurance for older people, though it is hard to evaluate precisely due to incomplete data[7], and some older people are still likely to have difficulty finding insurance at a cost they can afford.

16. At the present time, financial services are excepted from the age discrimination provisions of the Equality Act 2010, so financial service providers are able to discriminate on the grounds of age subject to the provision that if they conduct a risk assessment, the information used must be relevant and from ‘a source on which it is reasonable to rely.’[8] Nevertheless, the experience of being discriminated against on the grounds of age strikes many older people as being anachronistic and unjustified.

17. Age UK submits that there should be a review of the Equality Act financial services age exception, with the aim of making financial services accessible to all older people at prices that are not inflated, but fairly reflect risk.

Impact of pensions freedoms

18. Auto-enrolment into workplace pensions has been a major success in addressing exclusion from pension saving, with over 10 million workers estimated to be newly saving or saving more[9]. However, initially at least many will be retiring with small pension ‘pots’, which is bringing new challenges for financial inclusion.

19. From April 2015, people with defined contribution pensions no longer have to buy an annuity. The increased choice means that (i) pension savers face increasingly complex decisions at retirement and (ii) many will continue to face similarly complex decisions throughout retirement.  Even if savers have relatively small pots of retirement saving, decision-making can be extremely complex, especially where decisions need to take into account impact on benefit income and debt. 

20. Pension savers with modest amounts are unlikely to be able to afford regulated advice and take-up of the free Pension Wise service is not as high as we would like. Age UK would like to see ‘default’ pathways built into pensions that would still allow choice but simplify decision-making and reduce the risk of making poor decisions.  Where savers have been defaulted into retirement saving they may have even less experience of actively managing investment finances than other savers and may benefit more from defaults.

Scams

21. Consumers who are not financially capable, are not confident users of the channels they need to access financial services or are not well connected to networks which raise awareness of scams may be more susceptible to fraud than others. The impact of fraud can be immense at any age, both in terms of the financial loss and also loss of confidence. 

What policies and strategies should be adopted to address financial exclusion? (Qs 5-13)

22. We recognise and are supportive of the various industry efforts to reduce financial inclusion and improve services for vulnerable consumers.  However we note that to date many of the key developments in financial inclusion have involved Government or regulatory intervention and at this stage therefore believe that Government has a vital leadership role to play in order to make sure they do not fizzle out. Financial exclusion also has a cost to the Government, for example in providing Post Office Card Accounts.

23. Examples of areas where government or regulators have successfully stimulated action include:

• Treasury involvement in Basic Bank Account developments.
• Auto-enrolment into workplace pensions.
• Treasury Select Committee work on the future of cheques was pivotal in ensuring this valued form of access was maintained, followed by legislation to permit cheque imaging.
• Actions prompted by the Financial Conduct Authority’s work on vulnerable consumers and developing a strategy for the ageing population. 
• Establishment of public financial guidance services, such as Pension Wise and the Money Advice Service, including funding for financial capability interventions and debt advice

24. More generally, universal service obligations give UK citizens and residents certain rights to access to essential services such as water, energy, postal services and telecommunications.

25. In this context, we note and support the recent calls of the Financial Inclusion Commission which include:

• To designate a senior government minister with responsibility for financial inclusion.

26. In Age UK’s view, the priorities for action to promote the financial inclusion of older people are:

• Place a statutory duty on the Financial Conduct Authority to promote financial inclusion as one of its core objectives, as recommended by the Financial Inclusion Commission.  This duty should include a mandate to require financial service providers to meet designated standards in relation to access and customer service.   We identify the lack of safe, convenient and affordable access to payment and money management services as one of the first issues the FCA should address under such a duty. 
• Improve access to information, guidance and advice
• Require inclusive design of products and services
• Consider financial inclusion during policy change
• Review the law on age discrimination as it relates to financial services
• Maintain access to essential services for people who are not online and launch a refreshed digital transition strategy.

27. Financial information, guidance and advice

• The Government should ensure there is good public financial guidance, free at the point of use, to assist people make key decisions relating to their budgeting, pension and other savings, and whether or not to purchase financial products, including credit cards and others forms of access to debt.  This must be available throughout and not just at retirement.
• To support the guidance, consumers need to be able to access independent, relevant and accurate information.

28. Inclusive design

• Products and services including information and advice must be designed to meet the needs of the widest possible range of users. One major barrier to this in the case of older people is lack of research into how older people actually use financial services and a poor understanding of their needs.  This can be challenging because some groups will be excluded from common research methods, such as online surveys.  The coping strategies used by older people may also hide their needs further e.g. people who cannot access their own accounts and give passwords to family and friends, therefore appearing to be online.  However various studies including by the Payments Council and more recently the Financial Conduct Authority and Finance Foundation have demonstrated how these barriers can be overcome.  Combined with detailed customer journey planning and other design approaches this has the potential to significantly reduce exclusion among older consumers.

29. Consider financial inclusion during policy change especially around pensions

• The Government should take a strong lead in ensuring that the pensions dashboard currently under development is easy to use, accessible, includes all pensions saving and the State Pension and contains tools which allow consumers to make good decisions
• Government, advice and guidance providers must work together to improve take up of guidance and advice and ensure that public financial guidance meets the increasingly complex needs of users.  Increased research and sharing of the experience of Pension Wise to date will provide a sounder basis for future developments.
• The Government and industry should examine current customer journeys and develop ‘default pathways’ to assist people at retirement.  Experience within this sector has shown the limits of consumer education and provision of information and advice.  At the same time we have seen significant success with defaults such as auto-enrolment.

30. Review the law on age discrimination in relation to financial services

• Review the Equality Act financial services age exception, with the aim of making financial services accessible to all older people at prices that are not inflated, but fairly reflect risk.

31. Maintain access to essential analogue services

• Government, regulators and the banking industry should work together to achieve universal coverage of accessible banking services via bank branches, post offices or community facilities and/or by the creative use of new technology.
• Ensure that older people can access cash, use cheques and complete other money-related paperwork in a convenient way throughout the country.
• Ensure that methods of third party financial assistance (Powers of Attorney, third party authorities etc) can be set up and used conveniently throughout the country.
• Give the FCA a mandate to require financial service providers to meet designated standards in relation to access and customer service.

32. Launch a refreshed digital transition strategy

• Achieve universal UK-wide Internet and mobile coverage, at speeds that enable digital banking and other Internet-based financial services to be carried out quickly and efficiently.
• Address the cost barrier to Internet access for very low income households, including many retired people on low incomes.
• Re-design Internet and mobile access technologies to make them age-friendly, for example by developing new interfaces, new information displays and new ways of passing security.
• Provide assurance of the security of Internet and mobile financial transactions by initiating a comprehensive anti-fraud and computer security strategy.
• Ensure adequate provision of skills training and support for those who need it.

Other Matters

Personal responsibility for financial inclusion (Q7)

33. When Age UK hears about or offers advice in relation to financial exclusion it is nearly always in situations where people (themselves or their carers) are trying to take personal responsibility for financial inclusion but either, (a) do not have the information they need to do so, or (b) have met a barrier of some sort. From our point of view it is more productive to tackle the information deficits and barriers than to engage in a general discussion on personal responsibility.  We note that many government policies over the past several administrations have, in fact, increased the amount of responsibility that individuals need to take in respect of their finances, for example by increasing choice at retirement.  

Government role in relation to Fintech (Q14)

34. From Age UK’s point of view, one of the most productive interventions government could make in relation to Fintech would be to require developers of financial technology to adopt inclusive, age-friendly design. As argued elsewhere in this submission, from the point of view of most older people, Fintech must be radically simplified in terms of interface, use and ‘passing security’. Older people also need greater practical reassurance of their security in an online environment. At the moment there is a generalised fear among many older people of fraud, scams, computer insecurity and data breaches which is holding back the adoption of Internet-delivered financial services even among those who already use digital technologies to a certain extent.

35. In relation to data capture (Q14), customers need assurance that captured data will be used for the benefit of the customer rather than the service provider. As we have seen in the insurance market,[10] data capture can lead to predatory pricing and increase the information asymmetry between provider and customer. Any regime for data capture should be designed and regulated to prevent this from happening.

An appendix with the supporting research for this submission follows.

(end)

Appendix: Supporting Research

A1. Measuring financial exclusion of older people in the UK (Q2)

A1.1 The poverty measure of exclusion

According to DWP, 1.6 million pensioners in the UK have incomes below the poverty line, with a further 1.2 million having incomes just above the poverty line.[11] This continuing level of pensioner poverty reflects three things in particular:

• The number of pensioners who do not claim all the benefits to which they are entitled.
• The low relative level of the state pension, due to the breaking of the income link in 1980 and the relatively recent introduction of the ‘triple lock’.
• The fact that the UK has never had an occupational pension system with universal coverage.

A1.2 Measuring exclusion from financial services

In 2012 the International Longevity Centre (ILC) published a study of the financial exclusion of older people in 2002 and 2008 based on analysis of the English Longitudinal Study of Ageing (ELSA), which surveys a large sample of people aged 50+. In terms of single measures of exclusion, ILC found that 8.5% of older people in 2008 did not report having a current account and, on a multi-product measure of exclusion, the exclusion rate was 6.8%.[12] This equated to 1.26 million people in England and Wales in 2008.

Since the ILC report was written, Wave 7 of ELSA, for the year 2015, has become available. Table A1 shows the percentage of people aged 50+ not reporting use of selected financial produces in 2015:

Table A1: Percentage of people aged 50+ not reporting use of selected financial products in 2015

ELSA, Wave 7, 2015[13] The total UK population aged 50+ in 2015 was 23,628,900 (ONS)

Table A2 shows the same measures for people aged 65+:

Table A2: Percentage of people aged 65+ not reporting use of selected financial products in 2015

ELSA, Wave 7, 2015. The total UK population aged 65+ in 2015 was 11,611,200 (ONS)

A1.3 Importance of the cash economy and access to cash

For those without a current account, the options are to work and live exclusively in cash, use a Simple Payment card or open a Post Office Card Account (POCA), which is a means of receiving state pension and benefits and withdrawing cash. At the end of 2014, 2.5 million people, over half of whom were pensioners, had POCAs.[14]

One persistent finding of Age UK and other research[15] into the financial behaviour of older people is the degree to which many older people still operate in cash, not only to pay bills but also to do their budgeting. For example, a recent study of the over-80s by the Finance Foundation[16] found that 21% never pay bills by direct debit or standing order, 28% never use a debit or credit card and 87% never use the Internet for banking or shopping, as shown in Table A4.

Table A4: Survey participants aged 80+ who never use the named methods of making transactions

Source: Cooper 2016, p 18.

For people who operate almost exclusively in cash, cash has the benefits of being tactile and tangible. It can be arranged physically, for example in jam jars or in specific pockets of a purse, to help plan payments and avoid going into deficit and incurring high overdraft charges.[17] While this might seem anachronistic to a financially sophisticated reader, for the people concerned it can be a positive decision, avoiding the risks and complexity of credit and new technologies.

Cash is also vital even for those who do use other payment methods.  Many cash payments will be small person to person payments e.g. paying a share of a car ride, a small amount for coffee at a day centre or small gifts.  These payments may be relatively hidden and because small can be easily forgotten, however they are essential enablers of social inclusion and independence.

Given the importance of cash, it is necessary to look carefully at the means people have for accessing cash. Bank branches, post offices and ATMs are essential for access to cash. The free ATM network has improved in recent years, but bank branch networks are shrinking and smaller post offices, due to limited resources, are patchy in their performance. Age UK increasingly hears of communities that have lost all their bank branches, creating significant difficulties for local businesses and stranded customers, many of whom are in the older age group. Stranded customers are also affected by limited bus networks, sometimes making a visit to a bank branch a major round trip or, on occasion, impossible. Banks encourage people to shift to Internet or phone banking, but cash cannot be withdrawn by either of these channels.

Regarding ATMs, people over the age of 75 report that they are reluctant to use on-street ATMs because they are concerned about security.[18] Cooper 2016 found that only 14% of survey participants aged 85+ would use an on-street ATM, while 30% would use an ATM only in a bank or post office.[19] In this age group, 29% had never used an ATM and 17% avoided using one if possible. This means there needs to be an emphasis not only on availability of ATMs, but on the safe location of ATMs from the point of view of the older user.

A1.4 Financial capability and exclusion

There have been many surveys of financial capability in the UK, with the results tending to show that a large proportion of the population has limited financial skills, even when tested on what might be considered simple questions involving addition, subtraction, percentages and basic financial or economic knowledge.[20]

Addressing the financial exclusion of older people, Sinclair et al 2016 report that 9.2% of people aged 55-59 had the lowest scores on a simple six question test included in the English Longitudinal Study of Ageing (ELSA). This rate rises with age until 31.9% of those aged 85+ had the lowest score in the same test.[21] This age-related decline is consistent with findings in the scientific literature that show that on average financially-related cognitive skills decline with age.[22]

Applying the age-related financial capability table in Sinclair et al 2016 to ONS’s UK population estimates by age group suggests that around 2.2 million people aged 65+ would be in the lowest scoring bracket on the ELSA financial capability measure. The Money Advice Service’s 2015 financial capability survey paints a broadly similar picture. For example, MAS found that only 66% of older people in retirement were able to answer correctly basic financial skills and knowledge questions, falling to 53% of those aged 75+.[23]

It may be that the impact of declining test scores is mitigated by the way older people choose to manage their money. It is therefore especially important that older people are enabled to use their full range of coping strategies and not further restricted by service design.

Age UK’s experience, as well as research evidence, suggests that it is hard to teach financial capability in the abstract. People tend to seek assistance when they are facing a life event or challenging situation, and the assistance given needs to be of a concrete, problem-solving nature.[24] Sinclair et al 2016 say that ‘financial education may therefore be part of a solution at the margin, but it is by no means a silver bullet.’  We note that evidence on financial capability is currently limited and that much more needs to be learned about how to help people to change their behaviour in this area. 

In this context it should be noted that a large majority of the UK population do not access paid-for financial advice. ILC 2015, based on analysis of the Wealth and Assets Survey, found that only 4.9% of the UK population aged 16+ had taken advice from an Independent Financial Adviser (IFA) in the previous two years. Of those who had purchased a financial product the rate of taking IFA advice was 11.25%.[25] Thus paid-for financial advice is unlikely to play a large role in improving financial capability, especially for those who are financially excluded on other measures.

A1.5 Physical access and exclusion

Postcode level data on bank branches, post offices, ATMs and population by age would be required to identify the precise number of older people affected by distance to counter services or the impact of bank branch closures. However an estimate can be made from the Cooper 2016 survey of the financial practices of those aged 80+. Of the survey participants, 74% reported that they used counter services to take out cash and, of these, one third were finding it difficult to get to a bank or post office branch and over a quarter were concerned about the impact of branch closures on access.[26] Such concerns were also reported in the 2016 Age UK report, Age-friendly banking – what it is and how to do it.[27]

Applying Cooper 2016’s percentages to the ONS UK population data by age, it can be estimated that 760,000 people aged 80+ were finding it difficult to get to a bank branch or post office to access counter services and 575,000 people aged 80+ were concerned about the impact of branch closures on such access.

A1.6 Digital access measure and exclusion

Access to the Internet is strongly associated with age, with the latest (2016) ONS statistics showing that while 88% of people aged 55-64 describe themselves as recent users of the Internet, this rate drops to 74% of those aged 65-74 and 39% of those aged 75+.[28] Among older people, Internet use is associated with social class, with the ‘DE’ social group having a significantly higher non-use rate than average.[29] There is also a slight gender bias, with older men having a somewhat higher Internet use rate than older women.[30] This may in part reflect the over-representation of women among the oldest old.

Converting the above percentages into numbers using ONS’s 2015 population estimates suggests that 5.8 million people aged 55+ (out of a total of 19 million) are not recent users of the Internet. Of these non-users, 3.2 million are aged 75+.[31]

Factors contributing to this high rate of non-use are: unfamiliarity with computer technology and the Internet, cost (for those on low incomes), poor availability of broadband in many rural and semi-rural areas, lack of age-friendly design and security concerns about the Internet.[32] Security concerns are a particular factor deterring older people from engaging with Internet and mobile banking. For example, Cooper 2016 found that only 7% of her sample of people aged 80+ were ‘active Internet bankers’, while fewer than half of those who used the Internet for banking or shopping were doing so more often than once a month. Respondents reported ‘widespread concerns about either making mistakes or being caught out by fraud.’[33]

While there has been some improvement in Internet participation rates from year to year, the rate of change, particularly among those aged 75+, is not fast, suggesting that it will be many years until Internet use becomes ubiquitous among the oldest old. Age UK’s 2015 research into the digitally excluded found that the barriers to Internet uptake among some older people were high and that programmes to change this would need to be sustained and well resourced.[34]

A1.7 Impact of physical or cognitive ageing

Physical and/or cognitive changes can impact ability to access financial services. Data from the English Longitudinal Study of Ageing suggest that the proportion of people with five or more difficulties with activities of daily living rises from around 3% in the 65-69 age group to around 20% at age 90.[35] Age UK regularly hears about the difficulties such people have in accessing financial services, where problems with mobility, dexterity, stamina, hearing, vision and cognition can combine into very high practical hurdles in accessing transactional banking or selecting new products.[36] Applying the above percentages to the ONS UK population estimates for 2015 suggests that around 840,000 people aged 65+ in the UK are affected by five or more difficulties with activities of everyday living.

Normal age-related cognitive decline has an impact on financial capability. Mild cognitive impairment can severely affect interaction with money and financial services.[37] The extent to which this limits an individual’s ability to manage their money will depend significantly on the design of the services they use and the other support available to them. It is not inevitable that ageing means that we will become unable to manage our own finances.

The onset of dementia makes independent financial management increasingly impractical and forces a person to be reliant on others for financial management via Power of Attorney or a Court of Protection Deputyship Order. According to the Alzheimer’s Society, there are 850,000 people in the UK with dementia.[38] These people depend on unpaid carers and other forms of assistance to conduct their financial affairs, meaning that the methods and convenience (or not) of third party assistance affect probably more than two million people at any given time.

A3 Financial exclusion arising from the incomplete digital transition (Q1)

A salient feature of the UK in 2016 is the incomplete nature of the digital transition, particularly as it affects older people. While Internet use is almost universal among people in their twenties and thirties, a majority of the over-75s and a large minority of the 65-75s are still not online.[39] Non-participation in the Internet by people aged 65+ is a product of the cost (out of low incomes) of Internet access and devices, unfamiliarity, lack of age-friendly design, age-related disabilities and security fears. Together, for some older people, these factors create an insurmountable barrier.[40]

Furthermore, the Internet itself is not yet ubiquitous in the UK. There are many rural and semi-rural areas that have Internet and/or mobile black-spots or low running speeds, which make a satisfactory Internet experience difficult or impossible.[41] It is hard to persuade people to try something new when the infrastructure itself is not yet of a quality standard.

A3.1 Closure of bank branches

Despite the large number of people who are not Internet-enabled, banks are closing branches at a high rate. It has been reported that 1700 branches have closed in the last five years[42] and further closure programmes have been announced in 2016. Branches are closing even in busy tourist locations such as Glastonbury and Windermere. While banks report low footfall in their closing branches, this is contradicted by observers and community groups who report that closing branches are often busy.[43]

Participants in Age UK workshops tell us that face-to-face services are important for them[44] and Cooper 2016 reports that a high proportion of people aged 80+ have concerns about bank branch closures or are already having difficulty accessing bank branches and post offices.[45]

At the moment, the contradiction between analogue reduction and digital exclusion is insuperable, leaving many older people in a very difficult situation. To bridge the divide, new thinking is needed. There could be solutions involving:

• Shared bank branches.
• Enhanced banking capabilities for the post office network.
• Banking access in community facilities.
• Using new technology to create age-friendly banking access at a distance.

Whether solutions will be found by the industry acting voluntarily remains to be seen. Age UK suggests that the government will need to be pro-active to ensure that all older people can conveniently maintain access to banking services in the years immediately ahead.

A3.2 Digital exclusion and switching for ‘best deals’

Digital exclusion has an additional impact, hampering offline people from gaining access to the best offers for financial services such as savings and insurance and other services such as energy and telecommunications. Service providers are increasingly separating their customer base into ‘active’ and ‘passive’ customers, offering cheaper deals for the former while raising prices to the latter. This practice is known as ‘demand-based price discrimination’, ‘inertia pricing’ or ‘price optimisation’ and is particularly prevalent in the market for insurance.[46] It is also seen in other markets, such as current accounts and savings accounts, where offers are made to ‘switchers’ while loyal customers pay more or earn less for the same service.[47]

In such markets, digital access, digital skills and financial capability are essential for accessing best price offers and those who cannot do this are excluded from the leading value channel in many contemporary financial and product markets. Empirically it has been found that older people are over-represented in non-switching customer groups.[48]

References

ABI/BIBA/HMG 2016, Transparency and Access in Motor and Travel Insurance for Older People – An Agreement on Age and Insurance, 18 January 2016.

Age UK 2011, The Way We Pay, June 2011.

Age UK 2014a, Financial resilience in later life, June 2014. Available at: http://www.ageuk.org.uk/professional-resources-home/policy/money-matters/financial-services-commission/

Age UK 2015a, Never too late: Money advice and financial capability in later life, June 2015. Available at: http://www.ageuk.org.uk/documents/en-gb/never_too_%20late_report.pdf?dtrk=true

Age UK 2015b, Later life in a digital world, Age UK, December 2015.

Age UK 2016, Age-friendly banking – what it is and how to do it, Age UK, June 2016.

Cooper H 2016, “When I’m 84.” Locking the Door on the Older Old – the Challenge Facing Britain’s Banks, Finance Foundation (forthcoming).

Equality and Human Rights Commission (EHRC) 2016, Technical Guidance on Age Discrimination in Services, Public Functions and Associations, March 2016.

Financial Conduct Authority (FCA) 2015, Occasional Paper No. 8 Consumer Vulnerability, Feb 2015.

Financial Conduct Authority (FCA) 2016a, Ageing population and financial services, DP16/1, February 2016.

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9 November 2016