Capital Markets Corporate

November 22, 2019

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Money lessons stay in the family
Despite financial literacy having been part of the National Curriculum since 2014, young people are more likely to get most of their financial understanding from parents and other family members rather than school, the London Institute of Banking and Finance suggests. Its Young Person’s Money Index reveals just eight per cent of young people learned the most about money skills in school. Nearly a fifth were self-taught, leaving them vulnerable to inaccurate information. (From Financial Times, 19th November 2019)

Landmark crypto ruling
In a landmark legal statement designed to address uncertainty surrounding cryptocurrencies, crypto assets will now be recognised as a tradeable property under English and Welsh law. In addition, smart contracts – contracts stored on the blockchain – will also now become enforceable agreements. The change is thought to be part of a bid to position the UK as a global fintech leader. (From Fintech Futures, 19th November 2019)

Investors pay a premium for private equity rush
The private equity boom is now so pronounced that investors are paying a premium for stakes in buyout funds managed by the industry’s biggest companies. For the first time, stakes in big buyout funds are being sold equal to their last public net asset value, where previously they have traded below this. However, critics in the US warn the boom is becoming “frothy”, with institutional investors flooding the sector with money in the hunt for juicy returns, and private equity firms not able to spend it as quickly as they have been able to raise it. (From Financial Times, 20th November 2019)

Industry-wide ESG definitions introduced
The Investment Association has published a set of definitions for responsible investment aimed at creating a common language that describes and categorises ESG investment approaches and products. Currently, a variety of terms and phrases are used in different ways to describe responsible products and strategies. The IA says these could leave savers confused or unable to find the investment opportunities to match their diverse responsible investment goals. (From Pensions Age, 18th November 2019)

Employers promote free food over parental leave 
Some of Britain’s biggest companies are more likely to advertise free snacks than publish their parental leave policies, according to research conducted by Mumsnet. The parenting website looked through job adverts and found that among FTSE 250 companies, only 15, or five per cent, tell job seekers how much paid leave they can expect if they have a baby. Instead, employers are more likely to advertise fresh fruit, in-house massages and eye tests rather than details of maternity and paternity packages. (From iNews, 18th November 2019)

What is the new 65?

The threshold for when “old age” begins has been questioned this week by an Office for National Statistics (ONS) report as people live longer and healthier lives. But what does this mean for retirement planning – is 70 the new 65? Or should the traditional retirement age be pushed even further?

Increasing UK longevity means that traditional milestones in life are evolving: men aged 65 today can expect to live another 18.6 years, and women of the same age can expect to live another 21 years. Importantly, those years can typically offer a much better quality of life today than in years gone by, as, in percentage terms, there are just as many healthy individuals aged 70 today as there were aged 60-65 in 1997.

Not only are people living longer lives, but the proportion of older people has increased two-fold since the 1950s. Society is adapting to this increased longevity in some ways, such as by delaying the state pension age, which is set to reach 66 in October next year. Older employees are also increasingly vocal about breaking age-related stigma, with to increased policy focus on the importance of supporting older employees in the workplace to manage the challenges of ageing.

The ONS estimates that if trends continue, retirement ages will be 75 for men and 77 for women by 2066. A recent think tank report agreed, suggesting that the state pension should be eventually extended to 75.

But while some people will want to work longer and postpone retirement, others might end up being forced to. Another study this week found a third of Brits over the age of 55 are spending beyond their means. Two thirds (68%) are taking money out of their savings, and another 25% predict the increasing cost of living will lead them to raid their nest eggs next year. Almost half of over-55s say they lack sufficient savings to pay an unexpected bill of £5,000.

A recent survey in the US found that one in three people already expect to have to work past 65. Closer to home, a large proportion of Brits may not be able to lead an “adequate lifestyle” in retirement, even if they do not begin spending their savings until they are 68.

A national conversation needs to take place about the ‘new 65’ really means. Many people approaching what they thought would be their retirement age are now angry to find they must reassess their plans and stay in work. At the same time, younger generations face having to build significantly bigger pension pots to avoid an additional decade in work compared to their grandparents, who were able to stop working at 60 or 65.

There is a huge opportunity now for the financial services industry to drive the conversation about the new rules of retirement and how people can adapt accordingly. Anger and confusion need to be replaced by honesty and effective planning to ensure that – whatever the new 65 may be – future retirees are well prepared.

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