Today’s world has changed, which means that traditional silos of financial services must change too. The UK’s population is ageing rapidly and facing competing needs in an increasingly complex retirement landscape.
Property wealth has long been predicted to play a bigger role in funding later life, and we are starting to see this come to pass. Annual uptake of equity release products via Council members has grown from 570 in 1992, following the launch of industry standards, to 17,706 in 2012 when membership expanded to represent the whole industry, and reached 46,397 last year.
The sector today offers a wider choice of products and must continue to innovate. Since the standards were first introduced in 1991, they have sought to create a safe and reliable market that is future-proofed where possible for changing circumstances. This is more important now than ever before, with longer lives meaning vulnerability can potentially arise from multiple sources over an extended period.
Our ongoing work to evolve the standards reached a key milestone this year with the introduction of a principles and outcome-based approach. This complements existing rules such as the requirements for independent legal advice, the right to security of tenure, fixed or capped rates for life and the no negative equity guarantee.
The legal safeguard remains crucial. The Mental Capacity Act defines solicitors among those professionals capable of assessing a person’s capacity to enter a contract while assessing whether they are under no third-party duress.
The updated standards – launched to members last month and effective from January – include a prompt for firms to review the effectiveness of their frameworks for identifying and responding to vulnerability. Vulnerability is not static and can be triggered by factors including age, physical or mental health, bereavement and financial difficulties.
Given this fluidity, firms should ensure there is appropriate ongoing communication with customers throughout the life of the product. They should ensure regular reviews are undertaken and particularly when a trigger point occurs, so changing circumstances can be identified, addressed and supported.
The council’s standards board will work with industry to implement and supervise the standards as they evolve. Recent years have seen the number of products covered by its remit grow considerably – and further innovation is essential to meet demand.
The same requirement for innovation applies to later life lending in general. We must also ask whether similar standards – which build on statutory regulation to provide the highest form of protection for any property-based loan – should be more broadly applied to support consumers in their decisions.