By 2050, the UK population is projected to grow by almost 20%, to 77 million. By contrast, the populations in Germany, Italy, and the Netherlands are projected to decline. The investment management industry stands to benefit from the long-term opportunity presented by population growth in the UK, in spite of the challenges brought on by changing regulation, the pace of innovation, and the growing demand for low-cost products and services.

The UK population growth will provide a welcome boost to the assets available to investment managers, although in time it will be offset by the growing number of so-called decumulators (those aged over 65), a cohort that will peak between 2035 and 2040.

Government action to increase the state pension age and introduce auto-enrolment has been helpful in addressing the retirement savings gap. However, we expect the annual savings gap to increase between 2015 and 2050 from £8,000 to £10,000 per person. This increase will be driven by a growing population, the further decline of defined benefit (DB) pension schemes, and increasing income needs during retirement due to the rising cost of health care and long-term care.

The investment management industry has an important role to play and can benefit from helping people address their long-term savings needs. We estimate, that after taking into account the available housing wealth and non-pension specific savings like ISA's, the industry can close up to 50% of the remaining long-term savings gap. This would be driven by growing the number of people contributing to long-term savings, increasing the average contributions for those people saving, and improving net returns.

To achieve this, a number of hurdles must be overcome:

  • Human nature and low levels of financial awareness get in the way of decision making. 
  • The long-term savings market is fragmented, comprising many different providers and products.
  • Investors require better value-for-money services.
  • Solutions need to be tailored to increasingly diverse personal circumstances and preferences.

While government and policymakers can take steps to incentivise the right behaviour, and create the right market context, the investment management industry has a clear role to play. We suggest four specific solutions that the industry can adopt:

  • Improve consumer communication, engagement and guidance through digital tools.
  • Support information aggregation, to help overcome the fragmented nature of the industry.
  • Lower costs of operations, products and services through technology enablement.
  • Create more flexible products and services that are better tailored to individual needs and circumstances.

To adopt these solutions and win the long-term savings challenge, the investment management industry will need to be more agile and responsive. The task is substantial, but can be accomplished by those industry participants that are willing to invest in new skills in the areas of technology, product management and marketing and communication. Are you ready for the challenge?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.