Dwelling on our own mortality
Chris Prior is Manager Sales and Distribution at Bridgewater Equity Release
Dwelling on our own mortality and anticipating at what age we are likely to shuffle off this mortal coil is not something most people would relish doing. Indeed, you might be deemed rather morbid if you had to question those you came into daily contact with just what age they thought they might pass away.
As we are constantly told, there are only two certainties in life – death and taxes – and dwelling on either might not be considered a good use of one’s available time.
However, within the equity release space and certainly amongst equity release advisers, there are only a few things more important than a client’s view on their own life expectancy. Now I am fully aware that we are getting into rather tricky ground here but there has to always be a firm Q&A session with clients on their current health, background of illness (both theirs and their family’s), and when they believe they might no longer be for this world. Again, in black and white I appreciate it sounds slightly chilling but these discussions are absolutely vital if the adviser is going to recommend the most suitable equity release product for that individual client.
The whole issue of what we call ‘longevity’ in the equity release market is a delicate and sensitive subject to be broached. This is mainly down to the fact that we all know we’re going to die however we are most likely to put all our eggs in the basket marked ‘not anytime soon/a long time in the future please’. Therefore when asking potential clients about their own personal mortality rate we may well get an answer some way off what the official statistics show.
This is why advisers are vitally important in this process, because they are able to take a dispassionate view taking into account all manner of considerations. The other positive is that advisers generally get it right when it comes to recognising how long a certain individual is likely to live – at least the ones who attended our Masterclass sessions last year are.
We asked every adviser who attended each session what they believed was the most likely age that a 70-year old man and woman would end up living to? There was an array of answers however on average our adviser attendees said that a 70 year-old man would live to 83.7 and a 70 year-old woman would live slightly longer at 88. The actual answer, according to the latest Office for National Statistics figures, is that a man would live to 84.1 and the woman would live to 86.4. Essentially, our adviser base were just about spot on for the male perspective and slightly over-estimated for women.
Indeed, if you break our data down, it becomes particularly clear that male advisers (and I have to say that the majority of those who attended our Masterclasses were men) are very good at guessing male longevity, but tend to over-estimate females’. Perhaps that’s not so surprising; I’m sure most of us have a built-in belief that women live longer than men because we’re constantly told it, and it happens to be true. However, while it’s correct it’s also the case that women may not be outliving men by anything like the amount we perceive them to be.
So, why is all this important? Well, clearly as advisers, our own views on longevity, and that of the clients, are going to have a considerable influence on the recommendation we provide. Indeed, the very basic product choice of lifetime mortgage or home reversion will be impacted by this view, even before we’ve looked at the various individual product offerings. We’re certainly not saying that it’s the be all and end all of any consideration because that’s clearly not the case; key considerations will be, for example, the client’s attitude to risk and the client’s view on house price inflation. However, we would say that mortality/longevity is an important secondary driver when undertaking client considerations.
Because of this we have to be certain that we are not confusing perception with reality. A fit and healthy 70 year-old woman may well live into her 90s, however the statistics say she is likely to die sooner than this. The flip side of this is what client’s think about the years they have left – are they more or less likely to underestimate the age they’re likely to live to? In all circumstances it is important that the adviser helps customers understand their expected longevity and also the potential range they could live to. This information could have a significant bearing on the equity release route they wish to go down, particularly when you take into consideration the rolled-up interest that is part and parcel of the lifetime mortgage product.
All in all, advisers are in an important space when it comes to advising on equity release as a whole but also providing information on important topics to be considered like longevity. Working with official statistics alongside a client’s perception of the age they will live to is an important part of the process and will help shape a recommendation. These are important deliberations and should be treated as such – getting this right can have a major impact on the advice given and the shape of the years the client has left to live.