The rising life expectancy of the United Kingdom’s population is having a serious impact on the retirement planning industry and the customers we serve. It is, of course, great news that people are living longer, healthier lives, but there comes a point where the ever-growing old age demographic becomes a problem for businesses and the wider population alike.
Longevity is a double-edged sword
Equity release customers must be aged 55 and over, but we often deal with customers who are well into ‘later age’ and our average customer is now over 71. For every pensioner, bar the privileged few, retirement financing and budgeting is an important and often difficult task. Funeral planning, though not the nicest undertaking, is an essential reality for us all and the cost is set to continue its climb upwards.
In light of this, the International Longevity Centre UK has penned another thought-provoking report – ‘The funeral time bomb’. Apart from ‘time bomb’ now bordering on the trite – writing and reading about the interest-only time bomb has chipped away at my resolve – the issue is a serious one.
The report claims that, ‘2015 is a tipping point for the numbers of deaths in the UK’, and that, ‘over the next 20 years the number of deaths is likely to rise by 20%’, a significant jump. This jump is made more surprising when you consider that the number of deaths has been in decline since the 1990s, so why the sudden and pronounced rise?
Put simply, the post-war generation we now call the Baby Boomers are not getting any younger. They are now of an age where funeral planning will soon become an immediate consideration, and this will naturally cause the future rise in the death rate the report predicts.
A rise in the death rate as prominent as 20% will have a knock-on effect to the entire funeral planning industry and, inevitably, the cost. With pensioners already seeing their finances stretched ever further, another increasing cost is not what they want to hear. The report states that, ‘the cost of a simple funeral rose 80% between 2004 and 2014’, and that, ‘the average amount spent on a funeral in 2014 came to £5,423.’ By 2020, the report forecasts that the average funeral will cost ‘over £7,000’ and the issue will push many into debt.
The report addresses the issue stating that just over a fifth (22%) of people who have had to arrange a funeral in the last 5 years did so without any financial provision being set up by the deceased. The ILC-UK has called this a ‘real problem’ as ‘more than half of UK households have less than £3,000 in savings’.
With an estimated 109,000 UK adults incurring debt due to funeral costs in 2013 alone, and the cost continuing to rise and rise, many people will have to find the funds to fund their funeral from alternative sources.
The use of equity release to provide for the ever-increasing cost of funerals is one consideration many older homeowners could take. What’s more, with housing wealth increasing for many elderly homeowners but savings and pension pots being consistently depleted, the use of the lifetime mortgage to fund this unavoidable cost may become more commonplace.