Analyse the consequences of current factors and trends on financial services
I am currently working as a trainee journalist for ITV and I have produced articles them and researched and provided production for the financial services in the UK. Word is getting around about my knowledge and understanding and the FCA has invited me to address its members. I now am going to produce a report to the FCA analysing the consequences of current factors and trends and their likely impact on financial service provision in the next five years. Demographics are likely to have impact on financial services provision. In the UK we have an ageing population problem and this has implications on the provision of pensions.
Life expectancy for men is 78 and for women is 82. However, if you reach 65, it increases to 84 for men and 86 for women. Because we have an aging population it means people are living for much longer and puts strain on the government because they are forced to pay state pension which is around ?155. 65 a week for a longer period of time. In the next 5 years the pensionable age for women will increase from 60 to 65 which means that the government will save money on state pensions to women. For men it will not go up, it will remain at 65.
Currently the pensionable age is 65 for men and 63 for women but in 2018 it will be 65 for both men and women and in 2020 it will increase to 66 for both. By increasing the pensionable age, the government are going to save a lot of money. This will impact many people as they will have to work longer which could be considered well and bad. It allows them to put more money in their occupation pension however you have to wait longer to retire and receive state pension. In the next five years we know it’s going to increase and the government will save even more money.
I do not expect the aging population to change. Nature of work will also impact financial services. During a recession the unemployment levels increase because businesses are not doing well and not a large demand on goods and services which results in people becoming redundant. During this time people have less disposable income and as a result it means people don’t save a lot. This has direct impact on mortgages because people will struggle to pay off the mortgage repayments especially if they are unemployed; their property may get repossessed.
On the other hand, in a boom period, unemployment will be low and people will be have higher income allowing them to save more money. During a boom period, more people can afford to take out a mortgage because they are earning more. In the next 5 years, the economy will improve which means there will be a direct impact on savings and mortgages. More people will save money and take out mortgages. If the economy is in a state of boom, more people will be employed, people earn higher salaries, more disposable income, then they are in a better state to save and easier to obtain a mortgage.
In contrast, if the economy is in a recession, businesses tend to struggle, more people are made redundant, and unemployment levels go up which means lots of people are not in a position to save or obtain a mortgage. Currently the UK economy is in the recovery phase. In the next five years, I expect the economy to move into a boom period; people will have more savings and will get more mortgages. Moreover, financial inclusion will have an impact on financial service provision. Three million adults in the UK who currently don’t have access to banking facilities.
As a result, this makes it difficult to pay people state pension. It is common to those without banking accounts live in remote areas where they may only have a post office. Therefore by upgrading the ICT at post offices, it meant that anyone could go to a post office and open an account and the government could then deposit things such as pensions into these accounts. In the next 5 years, people with banking accounts will increase due to the easiness and effectiveness of internet banking.
Also post offices will be offering more retail banking facilities and will be widely used such as credit cards, mortgages and loans. With the change of technology, this problem will slowly decrease due to the widespread of the internet. Furthermore, low inflation will have impact upon financial service provision over the next five years. This has implications for endowment policies returns and retirement annuity rates; these policies can be linked to the rate of inflation which is currently 0. 5% in the UK.
If the rate is very low like it is currently, it means the monthly payments are not going to rise and therefore the returns will be fairly low in time to come. However, if the inflation rate is higher, the monthly payments will go up. If you pay more, the returns will be higher. In the next 5 years the inflation rate will increase because the state of the economy will improve meaning there is larger disposable income which will lead to a bigger demand in goods and services. Businesses will then increase their prices leading to higher inflation and endowment and retirement annuity returns will be much higher.
As a result of technological developments we now have many goods and services that can be purchased online. For example, insurance, life insurance, loans, mortgages, credit cards, savings and investment products and much more. More businesses have online capability because it is easy and convent for the customer. Customers want to be able to purchase goods and services from the comfort of their home. Now, businesses have created databases where customer information is stored, they are then informed by email or post about what new financial products and services are available.
Security within these sites have improved largely, people can now buy products with a lot of confidence; personal details are safe and there are many acts that protect customers online. In the next 5 years, technology will improve, more businesses will operate online and more financial products and services will be made available online. Security will be even more secure making it less likely to be hacked making more people confident to shop online. Additionally, distribution channels will influence financial services.
We now have many high street retailers. For example, Tesco, marks and spencer, Sainsbury and Asda that are now all providing financial services and products. They have financial products such as savings products, loans, mortgages, insurance and credit cards. It isn’t only banks and building societies that can provide these products like it used to be. Furthermore, we also have online comparisons like Go Compare and Compare the Market. This allows you to compare and rate different places to find the cheapest options.
In the next five years many more high street retailers will provide financial services for customers and current retailers will provide more products to customers; some are already doing at a small scale such as credit cards. There will also be more comparison sites that will help customers find the cheapest products. There are many new and innovative new products that are available to customers such as virgin who have a Virgin One account which is an integrated current account, savings account and mortgage account all in one.
Another integrated product is a buy-to-let mortgages which allow you to take a mortgage but to rent it out to other people, this is a good investment opportunity. Deferred credit arrangements is also another new products which allows you to purchase the product now but pay for it later. Lastly, 0% APR finance means that if you get finance for an expensive product you do not get any interest. In the next 5 years, more innovative and new products will come into the market. Lastly, the credit crunch has impact upon financial service provision over the next five years.
The credit crunch started in the USA and banks were providing loans and mortgages to unreliable borrowers who has low credit history and income and they couldn’t pay is back. The government had to then pay the banks out with tax payer’s money. This had direct impact on savings and mortgages because the banks now conduct in depth research on the customer before providing them any financial services as they do not want to make the same mistake again; it will be a lot harder to obtain mortgages and loans.
In the next 5 years the economy will improve and people’s salaries may improve. The banks will not lower their policies on loans and mortgages because they have learnt from their previous mistakes. In conclusion, there are many factors and trends likely to impact upon financial services provision over the next five years in the form of demographics, nature of work, financial inclusion, low inflation, technological developments, distribution channels, innovation and new products and lastly the credit crunch.