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The Social Contract

“If we imagine the current 8% contribution level and add a further 0.5% to cover life insurance benefits and another 2% to cover income protection and care benefits, then we could envisage a model in which most people’s needs  are addressed through a deduction of 10-12% of salary at source. In the long-run, there might not be an alternative way of making sure that Millennials are more resilient to income shocks and prepared to meet the financial challenges of today and tomorrow.”

Johnny Timpson has been leading Scottish Widows’ work in promoting a simpler, more flexible and inclusive approach to financial protection insurance that better meets consumer needs by offering a range of valuable support services, in addition to monetary claim benefits. He was recently appointed as the Government’s disability champion to promote access to insurance products. “We need to challenge conventional thinking,” Timpson says. “The ageing population is not something that will happen in the future. It’s happening here and now.”

The growth in the ‘unretired’ (that is, people of retirement age who are yet to stop working or who retired and have returned to the workplace) has shifted consumer behaviours and risks, Timpson argues. “More than circa half of mortgages sold by mortgage intermediaries today have terms that will see people borrow not just beyond state retirement age, but beyond age 70.  Protection policies will stop paying out at age 65, 70 or 75, but the policyholder might still have outstanding debts.” Long-term care is a growing need, yet two-thirds of people are currently self-funding care with the help of family members.

There is, for Timpson, in addition to our social care crisis, also a palliative care crisis. “People think hospices are part of the NHS. But they are funded voluntarily and there isn’t enough provision. We need an approach to funding long-term care which works across the generations. The cap proposals contained in the Dilnott report don’t work for most people.  We need a compulsory funded care solution, especially for younger cohorts of consumers who, unlike the generations that went before them, lack housing wealth and defined benefit pension benefits.”

This is the low ebb of what is set to be a rising number of older borrowers, with consequences stretching beyond the mortgage market. “Younger people are getting married, starting a family or getting on the property ladder later. As these are the trigger points for taking out insurance, people are buying protection insurance later. 10-20 years ago, people would take out a policy aged 26-27; today the average age is 34. The age of claimants is also creeping up and we’re seeing a large growth in partial payments which are largely health related.” Enabling people to “remain in place”, it seems, is not simply a challenge for the elderly. With Britain spending £25 billion a year on Housing Benefit, it is clear that lots of young people are struggling to keep a roof over their heads.

“Product development needs radical reform. The growing gig workforce needs a new financial safety net. We need a John Holloway for the 21st century. A product which allows people to pool money to meet all their protection and care needs.  Something which people can drawdown and which enables top-ups. We need to stop referring to a pension, and start calling it a ‘lifetime income fund’, where people would be encouraged to set a target value. I’m reluctant to use the phrase, but maybe we do need a bit of nanny state, a more centralised approach. Automatic enrolment creates a standardised product framework, a kind of ‘financial’ NHS”.

The UK’s automatic enrolment model could be broadened out to include protection, especially income protection, and care needs. This applies developments already operationalised across the globe. In Singapore, the country’s Central Provident Fund covers a range of benefits throughout life including retirement income, housing and health benefits; the Australian Superannuation Fund combines retirement and term life benefits.

“If we imagine the current 8% contribution level and add a further 0.5% to cover life insurance benefits and another 2% to cover income protection and care benefits, then we could envisage a model in which most people’s needs are addressed through a deduction of 10-12% of salary at-source. In the long run, there might not be an alternative way of making sure that Millennials are more resilient to income shocks and prepared to meet the financial challenges of today and tomorrow”.

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