hsbc study on retirement

8/13/2019 HSBC Study on Retirement

1/56The Future of Retirement Foreword1

The Future of RetirementThe power of planning

Global Report


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Photography

The photographs

of navigation tools(compasses, maps, plans)

and modes of transport

(walking, cycling, driving,

sailing, train, flying) used

in this report were chosen

to illustrate its key theme

the power of planning

to help guide us on our

journey through life.

The Future of RetirementThe power of planning


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Contents

Foreword 4

Introduction 4

The research 5

Executive Summary 6

Part OneThe changing shape of retirement 10

Not the beginning of the end but

a whole new chapter in life 12

Reality dawns for those nearing retirement,

but is it too little too late? 13

A new approach to working in later life? 14

Other important lifestyle changes 14

The death of your parents retirement

and the emergence of an East-West divide 15

The loss of entitlement and

growing unease in the West 16

The growing optimism in the East 19

The changing role of family

in funding retirement 20

What impact will changing family structureshave on high savings rates in Asia? 20

Case study: The joint family system in India 21

Part TwoShortfalls in retirement preparedness 22

How well prepared are people for retirement,

and where are the gaps? 24

Who will fund the retirement of the future? 26

Mandatory savings schemes 27

Case study: 2012 and the UK National

Employment Savings Trust (NEST) 27

The need to redefine aspirations

for retirement age 28

Part ThreeMaking the most of the planning premium 32

The continuing financial advice

and planning gap 34

Profiles of different consumer types:

planners and advice seekers 35

The planning premium: the softer benefits 38

The planning premium: the hard benefits 39

The advice advantage 40

Harnessing the power of planning 42

The role for the financial services industry 44

The role for individual households 46

Building a financial plan:Five practical steps 48

ConclusionsSupporting households

in planning for retirement. 50

The planning premium:

the benefits of financial planning 50

The need to change household

savings behaviour 51

The importance of working beyond

current retirement ages 51

Appendix 52

3


4/56The Future of Retirement Foreword4

It is my pleasure to introduce the latest in our series

of global studies into the Future of Retirement. The

power of planningis our sixth report and the most

action oriented to date.

A key tenet of HSBCs strategy is to anticipate,understand and act upon global macro trends. One of

these trends is the ageing of the worlds population

and the concurrent increase in life expectancy.

Addressing the challenges and opportunities of

ageing populations and longer lifespans will require

concerted effort by governments, employers, financial

institutions and, of course, families and individuals

themselves.

We look forward to embracing this opportunity and

want to contribute to the success of our customers

and society in meeting the challenge of an ageing

society. We are reshaping our business worldwide

to better help our customers meet their growing

and increasingly complex financial needs. We value

the insights gained from The Future of Retirement

research and are pleased to share the report publicly

to prompt further debate and action globally.

The power of planningis this years central message.

In recognising the combined benefits of having a

financial plan and seeking professional financial

advice, it adds a critical element to the Future of

Retirement series, moving beyond identifying the

issues and challenges and looking to provide points of

action towards a better retirement.

Plans without actions are less effective, so we

also need to understand the challenges in getting

individuals not just to plan, but also to take action on

these plans so that households can expect the best

outcomes in later life.

Working with our research partners, Cicero

Consulting, we have produced a report that we hope

can help households realise the power of planning to

improve their finances now and later in life. We are

pleased to present The Future of Retirement

The power of planning.

David FriedGroup General Manager andGroup Head of Insurance, HSBC

This years Future of Retirement report The power of

planning explores a number of emerging themes in

retirement and financial planning.

Firstly, we see how perceptions of retirement are

changing and what it means for working patterns,leisure and living arrangements. These changes reflect

not only demographic trends but also the recent

economic developments; post-financial crisis, there

is a divergence between the Western industrialised

nations and the emerging economies in Asia as to

how and, indeed whether, households should plan for

their retirement.

Secondly, the issue of who funds retirement

and the continued shortfall in retirement savings

remains a global concern. The recent global

economic downturn has undermined efforts to

meet the growing need to save for retirement. As

governments reduce the scope of entitlements

under state pension systems, households are

struggling to fill the gap. Furthermore, households

do not seem willing to work much beyond current

retirement ages. This places even greater emphasis

on the need to save more.

Finally, we see how households clearly benefit by

planning for their retirement the planning premium.

While there are many obstacles to saving for the

long term, efforts are required, through government

schemes to encourage financial education and

industry marketing campaigns, to encourage greater

personal responsibility.

We all have a responsibility not just to ourselves and

our families, but to the wider society to make sure

that we do not become financially dependent upon

either the state or others during our retirement.

Unleashing the power of financial planning is the

critical ingredient in achieving a successful retirement.

Mark TwiggDirector, Cicero Consulting

Foreword by HSBC Introduction from the author


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The research

HSBCs The Future of Retirement programme

is a world-leading independent study into global

retirement trends. It provides authoritative insights

into the key issues associated with ageing

populations and increasing life expectancy around the

world. Since The Future of Retirement programmebegan in 2005, more than 110,000 people worldwide

have been surveyed.

The 2011 report, The power of planning, is the sixth in

the series and is based on interviews with more than

17,000 people in 17 countries:

Argentina

Brazil

Canada

China

France

Hong Kong

India

Malaysia

Mexico

Poland

Saudi Arabia

Singapore

South Korea

Taiwan

United Arab Emirates

United Kingdom

United States

The report surveyed financial trendsetters of working

age (mostly between 30 and 60 years old) who tend

to be more educated than average, live in urban

areas and have greater access to the internet. Those

in emerging economies tend to share the same

attitudes and behaviour as those in the developed

world, including attitudes towards retirement

planning. The survey was conducted online in

December 2010 and some data was collected on

both a household and individual basis.

With the worlds population of over 65s set to

increase from 550 million today to over 1.4 billion by

2050,ithe need to better understand the financial

consequences of this demographic macro trend

demonstrates the continuing importance of The

Future of Retirement. Both Europe and North Americaare reaching a critical stage as the first cohorts of

baby boomers now approaching retirement and in

Europe this will see the working-age population start

to shrink from 2012 onwardsii. As a result, the elderly

dependency ratio will double: where at present there

are currently four people of working age for every

person over 65, by 2060 there will be just two people

of working age for every person over 65iii. The sums

involved in addressing this trend mean that ageing

demographics ranks alongside climate change as one

of the major challenges facing the world during the

21st century.

In this report, we seek to discover how this ageing

trend is viewed at the household level and provide

some pointers for individuals to improve their

retirement situation. The report is structured into

three main parts. In part 1, the report looks at the

fundamental attitudes to retirement; do people feel

generally positive or negative towards the concept

of retirement? In part 2, the report looks at how

these attitudes are impacting on peoples sense of

preparedness for retirement. In part 3, the report

focuses on how consumers can enjoy a financial

planning premium demonstrating how professional

financial advice and financial planning can make a

significant difference.

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6/56The Future of Retirement Executive Summary6

Executive Summary

The power of planning

41%41% felt that they were under-prepared for retirement to some

extent, while 64% admitted to being concerned that they would notbe able to cope financially in retirement.


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The Future of Retirement The power of planning

shows that the perception of retirement is changing.

Around half of our respondents view retirementas an age with largely positive associations, a time

of happiness, satisfaction and freedom. However,

retirement also carries with it negative connotations,

with one-third expressing fears about potential

financial hardship. This fear of financial hardship is

much more pronounced among those rapidly nearing

retirement age: reality dawns for those in their 50s

whose plans are likely to fall short.

The emergence of a major East-West dividein retirement perceptions

Not all countries view retirement through the same

prism: different countries and regions have different

perspectives. The factors which are driving the

positive mindset seem to be closely associatedwith the benign economic conditions andgrowing wealth in the emerging marketswhere,even during the financial crisis and recent global

economic downturn, there has been continued

growth in GDP, fuelling rising household incomes and

an increased ability to undertake a strong savings

habit. For example, Chinese households currently

save the equivalent of 38% of their GDP, while in

India the figure is 35%. This compares with 3.9% in

the USiv. Respondents in countries such as China and

India are consequently among the least concernedby potential financial hardship in retirement. In

South Korea however, we have seen a rapid decline

in household savings as a proportion of household

income to levels which now lag behind even many

western countriesv, which may help to explain why

South Koreans are generally more negative about

retirement than their Asian peers. At the same time

as boosting savings rates, this continued economic

growth is also driving inflation, which could explain

the less risk-averse investment appetite in emerging

markets.

The continuing role of the family

in funding retirement

For now at least, people in most emerging markets,

and particularly in Asia, take a positive view in

which rising household incomes today are equated

with greater financial independence in retirement.

Interestingly, this does not necessarily herald a rapid

demise in the important role played by extended

families: in our case study, we examined attitudes in

India where over 80% of respondents claimed that

family would remain important in funding retirement

while one-third said that they intended to live with

extended family members during their retirement.Nonetheless, growing levels of household wealth and

access to long-term savings assets in the emerging

markets will make elderly dependency

a less prominent feature of retirement over the

coming decades.

The baby boomer legacy: the deathof the traditional retirement

In sharp contrast to the emerging markets,

respondents in mature markets, where governments

and employers are currently seeking to limit

long-standing pension entitlements, see a less

positive outlook, with many respondents now

concerned that falling household incomes (ratherthan caring for elderly relatives) will leave themworse off in retirement than their parents. Wherewe do find people in the West with a positive

mindset, these people are concentrated in high

income households. This heralds the major and

undesirable development of a breakdown in the

unwritten contract between todays retirees and

the next generation of retirees, which in turn raises

the question of intergenerational equity: what kind

of retirement legacy will the next generation inherit

and is it a legacy which people can be reasonably

expected to adapt to? While people are expected tosave (and invest) more for their own retirements, we

see that 60% of those with no financial plan in place

claim that they lack the money to do so. Meanwhile,

the growing uncertainty post-financial crisis has

already left shell-shocked investors heavily risk-averse,

particularly in the West.

Will the East-West divide persist over time?

It is interesting to note that the behaviour of financial

trendsetters in emerging markets is starting to

catch up with the West: burgeoning debt levels

in the East, for example, are seen as an obstacle

to saving for retirement. Growing affluence inthe emerging markets is likely to result in higher

household consumption and possibly greater levels of

borrowing, lower savings ratios and a general shift in

household priorities away from deferred to immediate

gratification. This trend can already be seen in those

Asian markets such as South Korea and Japan which

were in the vanguard of rapid economic development

in the latter half of the twentieth century.

7


8/56The Future of Retirement Executive Summary8

There are major global shortfalls in retirementpreparedness

41% of our survey felt that they were under-preparedfor retirement to some extent, while64% admitted to being concerned that they would

not be able to cope financially in retirement. The

findings reveal that women aged between 50 and60 (those who are now of pre-retirement age) are

likely to experience the greatest challenges in funding

retirement. In total, one in five respondents did notknow what their main source of income wouldbe in retirement. Only 16% thought it would comefrom the state pension system and only 10% from

employer pension schemes.

Will people just keep working into old age?

Although one-third believe that work will play a

role in enjoying a happy retirement and 9% expect

paid employment to provide their main source of

retirement income, it seems attitudes to retirement

age are inflexible; most people expect to retire at a

similar age to the current pensionable age. Even in

countries such as France, where the issue of working

longer has become highly provocative, there is little

expectation that people will have to work longer. In

addition, semi-retirement is seen primarily as a route

to early retirement rather than working longer. This

will place even greater emphasis on the need for

individuals to save for their retirement.

The power of planning

What emerges strongly from the findings are the veryreal benefits of financial planning: respondents who

have a financial plan in place enjoy a clear planningpremiumwith hard financial benefits. Not only dothey hold a much broader range of retirement and

non-retirement assets than those who do not have

a plan, they also amass a significantly higher value

of assets; on average planners have amassednearly two-and-a-half times (245%) more in theirretirement plans compared to non-planners, andover three times more (319%) in non-retirementassets.

Alongside these quantifiable financial benefits, these

planners enjoy soft benefits such as a much morepositive outlook towards later life, and they worry less

about coping financially in retirement.

Given the demonstrable positives of planning, anencouraging picture emerges among youngerrespondents, with relatively high numbersundertaking financial planning and at earlier ages

than previous generations. We also find that younger

women are more engaged than those in their

50s, demonstrating positive long-term changes in

household behaviour among women.

Alongside the planning premium, our findings show

a clear advice advantage for those who seekprofessional financial advice. In general,

advice-seekers amass greater levels of financial

wealth than non-advice seekers.

Those people with a plan who have taken professional

financial advice enjoy the benefits of not only the

broadest range, but also the highest value of financial

assets. On average, those who take advice and have

financial plans have amassed over three-and-a-halftimes (357%) the retirement assets and over fivetimes (518%) the non-retirement assetsof thosewho do neither. Combining planning and advice yields

the best results.

Key barriers to financial planning and advice

The barriers to enjoying the benefits of financial

planning and advice are clearly linked. Across the

globe we find that there is a 50:50 splitbetweenthose who are undertaking a financial plan versus

those who do not. Not having enough money is seen

as a key stumbling block to undertaking a plan: 60%of those who do not have a plan blame this on

not having enough money. Lack of time is also animportant factor (15%), particularly for those in higherincome groups who are likely to find themselves

in demanding careers which leave them cash-rich

but also time-poor. Not knowing how to go about it

(23%) and not thinking it would be useful (15%) are

also factors.

Not surprisingly, many people appreciate financial

advice which is suited to their increasingly busy

lifestyles: 41% said that a financial advice sessionshould last no longer than 30 minutes and shouldfocus on their immediate needs. Reassuringly, those

with financial plans in place generally review them on

a regular basis.

The Future of Retirement Executive Summary8

On average planners have amassed nearly two-and-a-half times(245%) more in their retirement plans compared to non-planners,and over three times more (319%) in non-retirement assets.245%


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While taking professional financial advice is often

an essential part of the consumer journey towards

becoming a planner, we find that one in three who

sought financial advice failed to then act on that

advice. The problem of procrastination is more

pressing among couples where the financial

decision-making is shared. When couples make

household financial decisions together, only 41%act on professional advice, compared to nearlyhalf of single decision-maker households.

Steps towards better financial planning

A key challenge in encouraging households to start

planning remains the need to raise basic levels of

financial literacy. We find that half of the worlds

respondents feel that they have only basic levels of

financial understanding. Such a lack of awareness

forms a major barrier to taking action as these

individuals are more likely to procrastinate: one in

five of those who do not seek financial advice said

that they do not know how to find a good adviser

while one in ten said it was because they do not

understand financial advice.

The role of the Internet adds a fast-changing

dimension to this picture. Younger age groups are

more engaged with financial planning through

online channels while professional financial advice

is more concentrated among those in their 50s. This

generational shift in how people access financial

information is likely to have a long-term impact on

how people manage their personal finances, aswell as how people interact with financial services

providers.

Like retirement itself, the concept of financial advice

needs to be redefined to meet the challenges.

The financial advice model of the future should

acknowledge and take account of the consumers

preference for advice sessions that are short, easy to

understand and focussed on immediate needs.

As the onus shifts towards the individual taking

responsibility for their own retirement provision,

we have identified five steps that individuals can

undertake to build a more comfortable retirement.

This starts with establishing clear goals and

benchmarking through to developing

a comprehensive financial plan, implementing it and

reviewing it on a regular basis.

9

50%50% did not have a financial plan.


10/56The Future of Retirement Part One10

People have a generally positive image of retirement, with

nearly half (48%) associating retirement with freedom.

48%

Part One

The changing shape of retirement


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Retirement is not seen as the beginning of the end but as a new chapter in life. People

have a generally positive image of retirement with nearly half (48%) associating retirement

with freedom

Making the most of this freedom no longer requires people to stop working altogether. 36% thinkthat having work they enjoyed was extremely important to having a happy retirement. This was

much more common in Asia and the Middle East, peaking at 54% of those in Saudi Arabia

The death of the traditional retirement means different things in different parts of the world,

with an emerging East-West divide revealed in retirement attitudes

In the West, people believe that their parents are living a golden age of retirement and large

numbers of people in North America and Europe expect to be worse off in retirement than their

parents, peaking with France where 69% felt their retirement would be worse than their parents,

and only 13% felt they would be better off

This fear is largely driven by the decline of state and defined benefit employer-sponsored

pensions. Of those British respondents who think they will be worse off than their parents,57% blame the lack of company pension schemes

Among those people worrying that they will not be able to cope financially in retirement, there

are marked differences between respondents in Asia and those in the West

Asian respondents worry that their savings will be depleted by unforeseen events and overone-quarter are concerned about the cost of looking after their parents in old age. The role of the

family in funding retirement is a much bigger issue in Asia

Respondents in the West are more likely to fear the increasing burden of debt. Westerners

also reveal a greater fear of investment risk choosing to be much more conservative in their

investment approach

Latin America displays unique characteristics. While the region is similar to other emerging

markets in terms of economic development and household income levels, we find that culturally

Latin America has more in common with the West

Key findings

Dont simply retire from something;

have something to retire to.Harry Emerson Fosdick



The 2011 findings show a high degree of consistency

with the Future of Retirement reports of previous

yearsvi. The demographic trend placing most countries

on the path towards ever increasing life expectancy

is now well understood. In fact, our research revealed

that it is in those countries which are ageing most

rapidly where we found the greatest retirement fears.

In effect, there is a direct link between a societyscurrent life expectancy and the fear of longevity,

suggesting that people are far more aware of the

looming demographic time bomb than is often

assumed. If people are beginning to grasp that

retirement is set to change, then the key questions

are: how do people feel about the future of retirement,

and what factors are influencing the way people think?

Not the beginning of the endbut a whole new chapter in life

Attitudes to retirement are generally positive. Far from

being seen as the beginning of the end, the prospect

of having a long retirement is thought of as a whole

new chapter in life and a period of big lifestyle changes

affecting not only working patterns, but also livingarrangements and health.

While there is a general sense that retirement is

an age of freedom (Figure 1), this view is moreprominent in many (though not all) Asiansocieties. In addition, while it is clear that in the Eastfreedom and work go together in retirement, freedom

in the West is defined more narrowly as being

freedom from work.

48

35

33

25

25

20

19

19

Freedom

Happiness

Satisfaction

Opportunity

Wisdom

Wealth

Hope

Excitement

Discrimination

Loss of memory

Fear

Loneliness

Boredom

Poor health

Financial hardship

9

13

16

19

22

29

32

0 10 20

%

30 40 50

Figure 1:Positive perceptions of retirement predominate

Q. Which of the following do you associate with retirement?

Base: All respondents, multiple responses allowed

Overall, we see that the yellow bars (which show

positive associations) rated higher in peoples

mindsets than the blue bars (which show negative

associations)

The single most popular response associated with

retirement was freedom, chosen by 48%. Other

positive associations such as satisfaction (33%)

and happiness (35%) were also rated highly

However, many people see retirement as

a time of financial hardship (32%) and potentially

poor health (29%) revealing that while people

are naturally upbeat about retirement, they do

understand that there are potential risks to be

managed


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Reality dawns for those nearing retirement,but is it too little too late?

The fact that financial risks are present in retirement

dawns increasingly on people as they near

retirement. We see that the older age groups (thoseaged over 50) are likely to be much less confident

about retirement.

At some point during a persons 40s and 50s, the

reality dawns that they havent done enough in terms

of thinking about and planning for their retirement.

Currently, most people respond to this reality by

deferring their expected retirement age. In future,

one of the key challenges facing employers,

governments and financial institutions is how to

encourage individuals to act earlier in life so as to enjoy

a more positive financial outcome.

30-39 year olds 40-49 year olds 50-59 year olds

31

25

3540

1712

20

30

40

10

0

%

The reality of

retirement strikes

Optimism wanes

with age

Wealth

Financial hardship

Figure 2: Reality dawns for those nearing retirement

Q. Which of the following do you associate with retirement?


It is clear from Figure 2 that there is a significant

relationship between a persons age and their

perception of financial well-being in retirement.

As people near the onset of retirement, their

perceptions of what they can expect to experiencegrow increasingly negative

While a quarter of those aged 30-39 (25%)

associated retirement with a time of wealth,

31% associate retirement with financial hardship,

representing a net score of minus 6%for the

optimists. However, among those aged 50-59,this net score falls to minus 28%with just 12%associating retirement with wealth

As people near retirement,

their perceptions of what they

can expect to experience grow

increasingly negative.



Asian respondents are much more likely to see

having work you enjoy as being extremely important

to achieving a happy retirement (Figure 3)

North Americans are generally more flexible to

the idea of working in retirement than European

respondents

Within Europe, only 5% of respondents in France

see retirement as an opportunity to be flexible

in how they work while only 14% think that work

will be important for achieving a happy retirement,

whereas twice as many UK respondents

thought this

France

Poland

UK

Canada

US

Brazil

Mexico

Argentina

SaudiArabia

UAE

HongKong

SouthKorea

Taiwan

Singapore

India

China

Malaysia

0

10

20

30

40

50

29

45

26 29

20 22

3933

47

19

29

36 39

45 46 46

27

Global average (34)

%

Europe North

America

Latin

America

AsiaMiddle

East

Other important lifestyle changes

Interesting attitudes to other important lifestylechanges also emerge in the findings. In particular,

there is a widespread fear that ill-health will come

to play a significant role on peoples finances in

retirement.

Globally, one-third of respondents expect there to

be a very significant impact of ill-health on their

finances. This rose to 74% when including those

who expect health to have quite an impact

This concern over ill-health is greatest in Hong Kong

and Singapore (both 87%)

In countries that lack a universal healthcare system,

this fear is not just the cost of treating themselves

in the longer term but also the medical expense of

treating their parents in the shorter term

As we see later, the fear of ill-health is not reflected

in peoples financial plans: only 40% of those with

a financial plan currently have medical expensesinsurance

We also anticipate important changes to retirement

living arrangements. With less than half of our global

respondents feeling that retirement is a time of

continuity, we find that:

Only one-third (34%) of respondents globally want

to live out their retirement in their current home

Higher income groups are almost twice as likely

as lower income groups to aspire to splitting their

time between their main home and a second

property

Lower income groups are almost twice as likely

as higher income groups to want to live with their

children and have family members close at hand

Figure 3: Enjoyable work, enjoyable retirement?

Q. Which of the following do you think are extremely important to achieve a happy retirement?

A. Having work you enjoy


A new approach to working in later life?

The potential shortfall in peoples retirement

preparedness is again evident in our research,

which suggests that people already understand that

increasing longevity will put pressure on them to work

longer. Longevity is increasing the need to save, faster

than household budgets can accommodate that need.

Even in countries with high savings ratios, the feeling

that people are still not saving enough for retirement is

apparent. Naturally, this raises the prospect of having

to work beyond current retirement ages. In many parts

of the world the prospect of being flexible in their

approach to work is a positive, with work seen as an

ingredient to a happy retirement.


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The death of your parents retirement and theemergence of an East-West divide

Underpinning the attitudes expressed above, it is clear

that few of our respondents expect to havea similar experience of retirement to their parents.The concept of a traditional retirement appears

to be eroding. But, what is considered traditionalis very different depending on where in the world

respondents live.

In the West, retirement has been associated with

entitlement to generous pension benefits whereas

in the East it has been associated with a sense of

responsibility to the older generation, who have often

found themselves financially dependent on younger

relatives. That both these traditions are expected to

diminish over time is producing a bipolar world - when

it comes to perceptions of the future of retirement.

People in the West are concerned at the passing of the

traditional retirement; people in the East in the main

are more upbeat and confident about their prospects.

Latin America does not fit neatly into either camp: on

certain economic issues (such as attitudes to financial

hardship), respondents behave like other emerging

markets, while on more cultural issues (such as

attitudes to risk), they are aligned much more closely

with the views of the Western economies.

Respondents in all of our North American and

European countries are more likely than the global

average to see retirement as a time of financial

hardship. Most of the emerging markets take a

less gloomy view of retirement

A notable exception is Argentina, where

government reforms in November 2008 led to

the nationalisation of USD23bn of the countrys

private pension funds. This followed a 20% fall

in the value of Argentinean pension funds at the

outset of the global financial crisisvii. These events

seem to have shaken confidence in retirement.

However, Mexico and Brazil fall into line with the

emerging markets rather than the mature markets

South Korea, which has seen a large drop in

household savings ratios in recent years, does

not fit the pattern displayed in the other Asian

economies and respondents there are much less

optimistic about how to fund retirement

Europe North

America

Latin

America Asia

Middle

East

Poland

France

UK

C

anada

US

Arg

entina

M

exico

Brazil

Saudi

Arabia

UAE

South

Korea

Taiwan

HongKong

Singapore

M

alaysia

India

China

18

42

17

31

52

353938

20

31

25 23

17

55

30

26

45

Global average (32)

10

20

30

40

50

0

%

Figure 4: Financial hardship in retirement expected by those in ageing economies

Q. Which of the following do you associate with retirement? A. Financial hardship




The loss of entitlementand growing unease in the West

One of the central choices facing mature markets is

how to reform entitlements in old age.

The sustainability of pension systems was already

in doubt given the ageing global demographics.

However, the financial crisis brought matters to a

head.

For respondents in the West, traditional retirement,

with its positive notions of early retirement, giving

up working completely at the age of 60 (or possibly

earlier), and enjoying the financial security afforded by

a relatively generous state pension and possibly an

employer-sponsored final salary pension scheme, is in

demise. In its place, younger generations of workers

are being told to save more for their own retirement

while being expected to work up to five years or

longer than their parents.

To some extent these younger generations are the

victims of their parents success. The baby boomer

generation which grew up after 1945 has enjoyed

the best of all worlds stable employment markets

typified by the job for life culture, long-term stability in

investment markets and a favourable property market,

as well as generous state and employer-sponsored

pension arrangements. However, the retirement of

this generation is now tipping the balance between

working age taxpayers and the retirement population.

Whereas the dependency ratio (the number of

workers compared to the number of retirees) is

around 4:1 today, it will drop to 2:1 by the middle of

this century. In other words, what the baby boomer

generation came to take for granted is no longer

affordable.

The loss of such benefits helps to explain the concerns

shared by large numbers of respondents in North

America and Europe where we see a generationof workers who think that they will be poorerin retirement than their parents(Figure 5). Oneof the basic principles of any retirement system is

that it is seen to produce fair outcomes between

each generation of workers and retirees, and it is

implicit in this contract that each generation should

not be left worse off than the one which preceded

it. However, our findings reveal that this so-called

inter generational contractxiseems now to be

fundamentally broken in the industrialised countries.

Efforts have been made in 2010 by many

countries to reduce the cost of state pension

benefits and encourage deferring of retirement

notably in Greece (where state pensions

currently replace up to 90% of working age

incomes) and France, both of which experienced

social unrest as a result

The UK, which has already committed itself to

increasing the state pension age from 65 today

to 68 by 2043, was required, as a result of its

deficit reduction programme, to bring forward

the start of the planned increase in retirement

age to 2016 from 2020viii

The European Commission is looking at ways to

improve both the sustainability and adequacy of

pension systems across Europe. Sustainability

in this context could be interpreted as a byword

for reducing state pension benefits over the long-

termix

In the US, the Presidents Deficit Commission

has made clear that the need to move towards

a balanced fiscal budget will require entitlement

reform, including healthcare reforms which will

hit future generations of retireesx

The financial crisis and pension reform in the West:


17/5617

Respondents in North America and Europe think

that their parents are enjoying a golden age of

retirement which will not be repeated when

they come to retire. France, for example, has a

net score of minus 56% of those who expect

to be better off in retirement than their parents,

compared with India which has a net score of plus69% (Figure 5)

The main drivers behind these concerns also

reveal why it is that Western respondents are

particularly gloomy, with the erosion of traditional

types of pension those provided through the

state and employers being a key concern in

developed markets (Figures 6 & 7)

-60

-50

-40

-30

-20

-10

0%

10

20

30

40

50

60

70

80

France US UK

Poland

Canada

Taiwan

Argentina

SaudiArabia

Singapore

Mexico

SouthKorea

HongKong

Brazil

UAE

Malaysia

China

India

-56

-37

-22 -20 -20

-4

11 16 17

2329 31

33 3442

6269

Figure 5: Better or worse off than your parents in retirement? (net score)

Q. Overall, do you think your generation will be better or worse off in retirement compared to your parents

generation?

Base: All respondents, those answering that they would be much or slightlybetter off minus

those answering that they would be slightly or much worse off



Younger workers are feeling the financial pinch

caused by living their lives in the slipstream of

the post-war baby boomer generation. Unlike

their parents, they will not benefit from generous

final salary pension schemes. This is a particularly

strong concern in the UK where 57% of those

who thought they would be worse off than their

parents cited the erosion of company schemes.This also emerges as a concern in the US (43%)

and Canada (41%) (Figure 6)

Another concern centres on the paring back of

social security schemes as governments seek

to find more fiscally sustainable ways of funding

old age. Again, the UK fares badly on 58% with

Argentina coming top on 59% and France close

behind on 57% (Figure 7)

Europe North

America

Latin

America Asia

Middle

East

UK

Poland

France

US

Canada

Mexico

Argentina

Brazil

SaudiArabia

UAE

India

Singapore

HongKong

Taiwan

China

Malaysia

SouthKorea

26

39

17

40

28

4143

23

34

40

31

19 17

3329 28

57

Global average (34)

10

20

30

40

50

0

%

Europe North

America

Latin

America Asia

Middle

East

UK

France

Poland

US

Canada

Argentina

Mexico

Brazil

SaudiArabia

UAE

China

SouthKorea

HongKong

Singapore

India

Malaysia

Taiwan

44

58

25

59

50515057

34

46

312527

38

2728

56

Global average (45)

10

20

30

40

50

60

0

%

Figure 6: Company pensions expected to be less generous

Q. Why do you think your generation will be worse off in retirement?

A. Because company pensions are no longer as generous as they used to be

Figure 7: State pensions expected to be less generous

Q. Why do you think your generation will be worse off in retirement?

A. Because state pensions (eg social security) are not as generous as they used to be

Base: Respondents answering that they would be slightly or much worse off

than their parents in retirement, multiple responses allowed

Base: Respondents answering that they would be slightly or much worse off

than their parents in retirement, multiple responses allowed


19/5619

What we are seeing now is the very real downside of

what has been referred to as the great risk shift in

which societys response to increasing life expectancy

is to expect the younger generations to shoulder the

savings and investment risk burdenxii. Our findings

illustrate that todays workers in the industrial countries

of the West have already acknowledged that a major

transfer of risk is taking place and are concerned aboutits implications.

The growing optimism in the East

In the emerging markets of Asia and the Middle East,

the death of the traditional retirement is producing

a very different picture. We see the traditional

dependency in old age being transformed into

greater financial self-reliance, fuelled by the rapid

improvements in household incomes and living

standards. For example, in just five years, Indias per

capita gross national income rose by a staggering

87% from USD630 in 2004 to USD1,180xiii. While still

low compared by international standards, peoples lifechances are being rapidly improved in India as in other

emerging markets, which filters through into a more

confident and optimistic view of retirement. This helps

to explain why people in the Asian markets aremore likely to see retirement as a time of freedom (Figure 8).

As an extension of this greater optimism and

confidence about retirement,Asian respondents alsodemonstrate much greater confidence in terms oftheir risk appetite;in comparison, respondents in theWest are relatively risk-averse.

Globally, 31% regard themselves as being

conservative being prepared to forego higher

returns to safeguard their capital

The number of conservative investors is notablyhigher in Western countries, peaking in France at

51%. This falls to just 12% of respondents in China

and 18% in India

While household incomes in Latin American

countries have more in common with Asia, we find

respondents in Latin America display risk attitudes

more closely aligned with the West. For example,

the number of conservative investors in Mexico is

comparable to the UK, and three times greater than

in China

It is in parts of Asia where the sense of freedom

is most commonly associated with retirement:

Malaysia on 69% ranked first in our survey,

followed by China (67%) and Taiwan (60%)

While our Western respondents may see

retirement as an age of freedom, this freedom

is defined more narrowly as freedom from

having to work, which may well turn out to be

rather limited given the likely reforms beingimplemented post-financial crisis

Europe North

America

Latin

America Asia

Middle

East

Poland

France

UK

US

C

anada

Brazil

M

exico

Arg

entina

Saudi

Arabia

UAE

South

Korea

HongKong

India

Singapore

Taiwan

China

Malaysia

42

58

3329

54 56

28

5347

40

69

60

45

34

67

59

49Global average (48)

0

10

20

30

40

50

60

70

%

Figure 8: Retirement means freedom

Q. Which of the following do you associate with retirement? A. Freedom




The changing role of familyin funding retirement

A particular point of interest regarding Asian

respondents centres on the legacy of the previous

generation of workers and the changing role of the

family. In the industrialised economies, where the

legacy is more likely to be financial, the generation of

baby boomer retirees look set to spend their childrens

inheritance. In emerging markets, the legacy is often

decidedly different. Rather than older family members

leaving financial bequests to their children, children are

expected to provide financial support to their elders.

This arrangement is a source of concern to those

respondents of working age in emerging markets.

What impact will changing family structures haveon high savings rates in Asia?

Much of the additional household income being

generated in emerging markets has been channelled

into high savings ratios. Over one-third of household

income is channelled into savings in India and China.

High savings rates in Asia are not simply a function of

engagement in long-term finances: there is a strong

precautionary motive driven, at least in part, by fears

of the financial strain of looking after other family

members. For example, the one child per family policy

in China has led to fears about financial security in old

age, as it becomes increasingly difficult for the onlychild to support two elderly parentsxiv. This may be one

of the most important factors behind the high savings

ratios witnessed in recent yearsxv. Our research shows

that the burden of looking after elderly relativesis a much greater concern as a potential causeof financial hardship in Asia than elsewhere(Figure 9). In the industrialised economies of North

America and Europe that have highly developed elderly

care services and subsidies, as well as the emerging

markets in Latin America, this fear is much

less pronounced.

North

America

Canada

US

Poland

France

UK

Argentina

Mexico

Brazil

UAE

SaudiArabia

SouthKorea

HongKong

Taiwan

Malaysia

India

Singapore

China

9 10 11

13 14 12

16 16 17 17

13

21

24 24 25

29 29

Europe Latin

America Asia

Middle

East

%

0

5

10

15

20

25

30

Global average (17)

Figure 9: More worry about looking after parents in the East

Q. Which of the following statements describes why you feel worried that you will not be able to cope financially

when you retire? A. Im concerned about the cost of looking after my parents in their old age

Base: Respondents answering that they were very or slightly worried about coping financially

in retirement, multiple responses allowed

Around a quarter of workers in Asia think that

they will struggle to cope financially in retirement

and lay the blame on the need to look after

ageing parents. This view was particularly felt

in Singapore and China where the number of

respondents who felt this way was approaching

one-third (29% in both countries)

These fears are greatest among younger workers

(aged 30-39) who are three times more likely

to worry about looking after their parents in

retirement compared with older age groups


21/5621

CASE STUDY The joint family system in India

We asked our respondents in India to assess the

extent to which the traditional family structure

will play a role in future retirement plans. The joint

family system, which sees parents, children and

grandchildren living under one roof, provides Indianswith a safety net that the increasingly strained

social insurance and pension systems of the West

does not. Overwhelmingly our respondents felt that

the joint family system was currently an integral

part of Indian retirement, though this looks likely to

recede over time:

49% ranked it very important with 36% calling

it quite important. This finding held across age

and income groups, with over 80% of high

income Indian respondents seeing the system

as important

Perhaps surprisingly, this feeling of security

was stronger amongst men than women, with

only 11% of the former seeing the system as

not important compared to 20% of the latter.

Given the likelihood that they will outlive their

husbands, women in India are beginning to

worry about the sustainability of the joint family

system in a rapidly developing economy where

families are becoming more geographically

dispersed

32% of Indian respondents expected to spend

their retirement living with relatives - almostdouble the global average

Nevertheless these results show that the

patterns of retirement are changing, even in

traditional societies like India. While it was once

assumed you would live with your children on

retirement, many Indians now think differently,

with two-thirds considering different options

Moreover, respondents worried about the

additional burdens that the joint family system

places on savers, with 25% concerned

about supporting their own parents through

retirement

Global economic and demographic trends are having a

profound effect on peoples attitudes to retirement and

planning for old age, evidenced in the stark differences

in outlook between the different regions of the world.

As we now see in Parts 2 and 3, positive attitudes are

clearly linked to levels of preparedness, where Asian

respondents are the most positive and also more

likely to be planning for retirement. However, many

households are frustrated in their efforts to save by

a number of financial advice and planning obstacles

which in turn lead to shortfalls in long-term savings and

investments.

21


22/56The Future of Retirement Part Two22

Part Two

Shortfalls in retirement preparedness

1 in 5Nearly one in five (19%) respondents do not know what theirmain source of income will be in retirement.


23/5623

Globally, there is a major dearth of retirement preparedness: 41% of respondents feel poorly

prepared for retirement, with two-thirds expressing a concern that they will not be able to cope

financially in retirement

People acknowledge that they will have to save more, but many feel that they cant fill the

retirement gap: 60% of those with no financial plan claim they dont have the money, while 43%

of those who thought that they would be worse off than their parents in retirement, blame rising

life expectancy and the need to save more

44% of women and 42% of young people feel that they are underprepared when it comes to

having enough money to live on in retirement

In the West people believe that their parents are living a golden age of retirement and large

numbers of people in North America and Europe expect to be worse off in retirement than their

parents, peaking with France where 69% felt their retirement would be worse than their parents,

and only 13% felt they would be better off

Who will provide the retirement of the future? The state pension is expected to remain the biggest

source of retirement income, even though social welfare is being reduced in most countries

Nearly one in five (19%) respondents do not know what their main source of income will be inretirement

Almost one in ten (9%) accept that they will have to keep working, with paid employment

expected to be their main income in retirement. However, reluctance to work much beyond

current state pension ages remains, with semi-retirement seen as a route to early retirement

rather than a way to extend working life

Within the home, men continue to shoulder most of the burden for long-term planning. Wherewomen do control the household finances, they are more concerned with short-term financial

issues such as household budgeting

The question isnt at what age I want

to retire, its at what income.

George Foreman

Key findings



Given the scale of the macro trends now shaping

retirement attitudes and behaviours, it is clear that our

ability to enjoy a comfortable retirement will be slowly

eroded unless we change our approach to funding old

age. While relying on family or working longer will fill

some of that shortfall, filling the retirement income gap

completely will require increases in peoples savings

for retirement. This is true even of emerging markets,which often have high savings ratios but typically

target those savings on looking after the young (eg

education), rather than funding their own retirementxvi.

Over time, we should expect to see a more balanced

approach to funding retirement based on what the

World Bank calls its multi-pillars modelxvii. Whereas

today many people rely on social security,the firstpillarof pension provision, many more people particularly in the emerging markets have not

yet come to rely on any type of formal pension

savings. Informal support systems, notably the

family, still remain strong, though not as strong as

it once was. While social security systems have in

the past provided a basis for pension systems, the

sustainability of state-funded models is coming under

growing pressure in the face of increasing longevity

and higher dependency ratiosxviii. In some countries,

these pressures are reaching crisis point, creating the

need for people to become increasingly reliant on the

second pillarof provision, employer contributionsmade on the employees behalf, or the third pillarofprovision, individuals making voluntary contributions on

their own behalf. In future, ever more responsibility will

be placed on the individual to plan ahead for their own

retirement.

How well prepared are people for retirement, andwhere are the gaps?

The aspiration among households to respond positively

to this challenge is quite high; we find that having

sufficient money in retirement is a fairly universal

financial goal; 88% of our sample thought this was

very or somewhat important to them (Figure 11). Only

in Mexico (81%), Brazil (60%) and Poland (76%) did we

see the figures fall below the global average. However,

this universal desire does not translate into a universal

sense of preparedness and it is telling that so many

people are still failing to plan for the inevitability of old

age. Most of us are potentially at risk of falling short

on our retirement income needs, but some groups are

more at risk than others.

Our findings reveal there to be a major globalshortfall in retirement preparedness, with41% of our survey feeling underprepared forretirement(Figure 10). Only one-fifth (19%) actually

feel like they are very prepared for later life. 64% ofour sample are concerned that they will not be able

to cope financially in retirement. This rises to 70%

of women aged 50-59 who emerge as our most

concerned group.

While those groups most at risk of falling short

in retirement income are women, the young

and those on low incomes, our findings reveal

that even those on high incomes (defined in our

survey as those earning the equivalent of over

USD100,000 in gross household income per

year) could and should be doing more to plan for

the eventuality of retirement

Where women are actively undertaking financial

planning, this tends to focus more onshort-term financial issuessuch as buildingup short-term savings and taking charge of

household budgeting

In contrast, men are more likely to be engagedin more complicated financial planninginvolving investment portfolios, tax planning and

purchasing investment properties. It is this latter

kind of financial planning which needs to be

broadly expanded across the adult population.

This is potentially starting to occur given the

positive signs of change among younger women

Globally, Americans and Canadians are most

likely to be saving specifically for retirement,

though even here we find that one-third of

respondents did not include retirement savings

in their financial plans and over half did not feel

well prepared

In China, where household savings ratios (the

amount of household income which is saved

as a proportion of GDP) outstrip those in North

America, there is a major preoccupation with

short-term savings, with 63% of Chinese

respondents building up short-term savings,

compared with 45% in the US

Indeed, deposit accounts emerged as theworlds favourite form of retirement savingschosen by 42% of respondents.Therefore,the relatively high levels of household savings

in countries like China might not be invested in

savings products likely to generate the best

long-term investment returns

The retirement preparedness gap


25/5625

19%

37%

26%

15%

3%

Somewhat prepared

Very prepared

Not very prepared

Not at all prepared

Not applicable

Figure 10: Nearly half think they are under-prepared for retirement

Q. Look at this statement and score it in terms of how well you are prepared.

A. Having enough money to live on in retirement

Figure 11: The preparedness gap

Q. How important is it to you, and how well prepared are you for the following statement?

A. Having enough money to live on in retirement

Base: All respondents

Base: Respondents answering very important to me and somewhat important to me, and

respondents answering very prepared and somewhat prepared, multiple responses allowed

China

Singapore

Malaysia

Argentina

UK

US

SouthKorea

UAE

Canada

Taiwan

SaudiArabia

France

India

HongKong

Mexico

Poland

Brazil

93

60

87

50

76

42

92

49

91

46

81

52 60

48

94

47

91

59

89

55

87

74

87

72

95

57

95

78

90

51

94

60

92

59

Global average of importance (88)

Global average of

preparedness (56)

Preparedness gap

60

20

0

%

40

80

100

Important Prepared

l l i

l l

In this report, we look at the gap between the

importance of preparing for retirement relative

to an individuals willingness to act and their level

of preparation. Although the majority of people

recognised the importance of the issue,

a considerable gap remains between recognising its

importance and the level of action or preparedness.

Only 19% globally feel very prepared that they will

have enough money to live on in retirement, with

another 37% feeling somewhat prepared (Figure 10)

Those nations with the highest savings ratios also

have the smallest shortfall between those who

see retirement income as being important and

those who actually prepare for it. For example,

Chinas shortfall is just 17% (Figure 11)

In the UK (33%) and the US (43%), we see

large shortfalls. Both countries have experienced

very low savings ratios in recent years; even

turning negative in the UK in 2008 (that is to say

households were spending more than their total

income)xix



Who will fund the retirement of the future?

Given the likely shortfalls in the levels of retirement

preparedness, a key question emerges: how will

people source their retirement income in future? What

is clear is that large numbers of our respondents dont

know the answer to this question.

%

Dont know

State pension (eg social security)

Other savings and investments

Individual personal pension scheme

Wages or salary from paid employment

Stocks and/or shares investments

Rental income

Defined benefit pension scheme

Defined contribution pension scheme

Selling your primary residential property

An inheritance

Support from children/descendents

Selling assets tied up in investment property

Selling assets tied up in a business

16

9

9

6

2

2

11

19

6

6

5

4

5

4

3

0 5 10 15 20

Figure 12: Expected sources of retirement income

Q. Which single source of income do you expect to provide you with the largest proportion of income during

your retirement?


Worryingly, the most common response globally

was Dont know, with this being the choice of

19% of respondents (Figure 12). However, the

younger age groups accept that the state is likely

to become a less reliable source of retirement

income (Figure 13). What isnt clear is what will fill

the gap left by the state

The state is still expected to be the most likely

source of retirement income, though only 16%

thought this: this reliance on state pension

provision falls with each age group

A further 9% expect to have to keep working to

fund their retirement income: salaries are seen to

be as popular as individual personal pensions in

providing the main source of retirement income

% 30-39 year olds 40-49 year olds 50-59 year olds

14

18

23

Global average (16)

10

20

30

0

Figure 13: Younger people expect less state pension provision

Q. Which single source of income do you expect to provide you with the largest proportion of income duringyour retirement? A. State pension (eg social security)



27/5627

UAE

India

Singapore

Malaysia

Brazil

Taiwan

SaudiArabia

HongKong

Mexico

SouthKorea

Argentina

UK

Canada

France

Poland

US

China%

0

5

10

15

20

25

30

35

40

Global average (16)

2

3 3

9 10 10 10 11

13

18

21 21 22 22 22

26

40

Figure 14: Reliance on the state pension: an East-West divide

Q. Which single source of income do you expect to provide you with the largest

proportion of income during your retirement? A. State pension (eg social security)


If state provision is set to decline, and people are

not saving enough for retirement, what of the other

options for funding the retirement shortfall? Certainly,

informal channels of providing financial support for

example, through the extended family will continue

to play an important role for some (as our findings in

India show). However, this too is likely to recede over

time which leaves an increasingly important role for

the individual to save for their own retirement. With

only 9% of people expecting a personal pension to

provide their main source of retirement income, we

are clearly still a long way from realising that goal.

Mandatory savings schemes

The need to create a balanced source of retirement

income spanning the three pillars of state, employer

and individual has been central to the creation of

national pension schemes, such as the Provident

Funds in Singapore and Hong Kong or the AFORE

scheme in Mexico. These typically represent a hybrid

of second pillar (occupational) and third pillar (personal)

pension provision designed to share some of the risks

inherent in long-term investment between all the

social partners employers and employees as well as

the state which usually contributes through offering

tax incentives on any contributions made. The UK has

become the latest to adopt this approach.

CASE STUDY 2012 and the UK National Employment Savings Trust (NEST)

In this years survey we asked a number of

questions relating to the UKs plans to encourage

greater retirement savings through the newly

created NEST scheme. From 2012, NEST will

require all workers over the age of 22 to save a

minimum of 8% of their annual salary. The scheme

is expected to contribute an additional 0.7% of GDP

to pensioner incomes by 2050, and about 1.2%

by 2070. So far, UK adults have not been quick to

grasp this new addition to the savings landscape:

48% were still not aware of the scheme with

a year to go until launch

Positively, 76% of all UK respondents said that they

like the idea or would like more information about it

Of those who dont support the scheme (25%)

the majority (53%) said they distrusted any

scheme run by government. Over a third of

them (36%) thought that saving for retirement

was a matter of personal responsibility

32% of all respondents did not want advice as

part of the arrangement saying that employers

should just provide information and let the

individual make up their own minds

The success of the NEST scheme in achieving high

participation and adequate contribution rates will

require a large amount of awareness building andeducation of consumers.



Mexicos AFORE pension scheme, which provides

pension coverage to working Mexicans, has not

created a population which is generally more

interested in its finances. Only 34% of Mexicans

discuss financial issues with their friends and family

(the second lowest in our global survey)

The Provident Funds in countries such as HongKong (where we find that 45% discuss finances

with their families) and Singapore (where 49%

do so) while high by international standards

notably lag behind the degree of consumer

engagement among most of their Asian peers in

this survey. For example, in China the figure was

59%, in Malaysia 64% and India 55%

Our findings suggest that where employees are co-

opted into default arrangements, where contribution

rates are determined by the government, people think

less actively about their retirement needs. While it

was not covered within the scope of the survey, there

may be a sense that the government has already

made the big decisions for them. Whether those

decisions turn out to be the right ones, particularly in

generating adequate retirement incomes in 20 or 30

years time, remains to be seen. While state initiatives

such as NEST will undoubtedly play a part in reducing

the retirement preparedness gap, such schemes can

lull individuals into a false sense of security about

their retirement. Therefore, it is equally important that

through consumer education, financial planning and

seeking advice, consumers realise that while such

government initiatives will help, they will not fully solve

the preparedness gap by themselves.

The need to redefineaspirations for retirement age

However the mix of retirement income is achieved,

it is unlikely that the growing retirement income

shortfalls can be funded on a sustainable basis without

people having to work longer. A clear signal in thisyears findings is the need for all governments toquickly review current state pension ages. Workinglonger beyond current retirement ages will necessarily

be part of the solution, as the UKs Pensions

Commission concluded in November 2005xx. The need

to increase retirement age is what the Commission

referred to as the unavoidable long-term trade-off

between higher public expenditure or a higher State

Pension Agexxi. Carrying on in paid employment is

one solution to filling the retirement funding gap.

This conclusion has already been made bythose 9% for whom wages or salary from paid

employment is expected to make up the main

source of retirement income

However, not all people will be able work longer:

we find that 74% are concerned about their health

in retirement. Managing ill-health will be a particular

challenge for those on low incomes and those in

manual professions who are likely to have access to

fewer financial assets and less able to keep working

Nor will all people want to work longer. We find that

the anticipated age at which people envisage full

retirement remains sticky. People are reluctantto work beyond 62 years in most countries,which is in line with effective retirement ages

already seen in most countries

While working longer, potentially by 2-3 years,

is inevitable for many, most experts agree that

retirement will be a multi-stage process over

potentially more than 30 years with periods of:

- Semi-retirement (around 60 to 70 years old)

- Active retirement (around 70 to 80)

- Passive/frail retirement (around 80 to 90)

Multiple products are and will need to be

developed by financial institutions to service

consumer needs around not only retirement

savings accumulation, but also post-retirement

income as well as long-term healthcare and wealth

transfer for wealthier individuals

Although younger generations are entering the

workforce later and deferring key life events (such as

the age that they get married), interestingly they are

not anticipating later retirement.

28 The Future of Retirement Part Two


29/562929

22

27

26

21

19

24

30-39 year olds 40-49 year olds 50-59 year olds

18

Medianage(years)

20

22

24

26

28 Got first full-time job

Got married for the first time

Figure 15: Life events are occurring later

Q. How old were you when each of these events took place in your life?


The average age at which certain key life events

are occurring is getting later with each age cohort

(Figure 15)

The average respondent in their 50s entered full-

time employment aged just less than 19 years old.

This increases to over 21 years for those currently

aged 30-39

Equally, the age at which people in their 50s got

married averaged 24 years, compared with 26

years of age of those now in their 30s

This delaying of life events has implications for

everything else in life, such as when people can

expect their incomes to peak and indeed when

they can expect to enter retirement



Figure 16 shows how the median anticipatedretirement age is remarkably similar to currentofficial retirement age. This is true even though someof our respondents will not be entering retirement for

up to 30 years during which time retirement age may

have increased by up to five years in some countries.

This demonstrates the importance of state pension

ages in helping people to make judgments about what

constitutes a reasonable retirement age. Only four of

our countries France, Malaysia, Singapore and India reveal that people living there anticipate working

beyond the current retirement age.

We also need to redefine the role of semi-retirement.

Currently, semi-retirement is seen as a means of

supporting early retirement rather than meeting the

aspiration of governments in encouraging people to

work beyond the existing state retirement age. In our

survey we found that:

Globally, the onset of semi-retirement was

anticipated to take place during peoples late 50s

compared with life expectancy in many countries

now in the early 80s. The median average for semi-

retirement age was just 55 years

This ranges from a high of 62 years in the USA to

a low of 50 years in both India and Malaysia. This

range in part reflects differences in life expectancy

experienced in those countries. However, in all

countries the desired average semi-retirement age

is below the current pensionable age

From the perspective of extending working lives,

public policy needs to be concerned not only with

increasing the official retirement age but alsoincreasing peoples healthy age so that more of the

time that is spent in old age is spent in good health.

In the final part of this report we look at what impact

undertaking personal financial planning has on

peoples long-term preparedness, as well as looking

at what can be done to encourage greater levels of

personal savings and investment.

Latin America

Middle

East

Europe

Hong Kong

Taiwan

Singapore

South Korea

China

India

Malaysia

UAE

Saudi Arabia

Argentina

Mexico

Brazil

Canada

US

UK

Poland

France

North America

Asia

Age (years)

655550 60

65

65

65

65

62

60

62

60

60

60

6060

5855

6065

60

606565

6565

6565

6565

6665

6565

6565

6262

State retirement age (men)

Anticipated retirement age (men)

Figure 16: State retirement age drives expectations

Q. At what age do you think you will fully retire?

Base: Male respondents


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Anticipated retirement age is

remarkably similar to current

state retirement age.


32/56The Future of Retirement Part Three32

Part Three

Making the most of the planning premium

60%There remains a strong financial advice gap across the worldwith 60% having never sought professional advice.


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Profile of different consumer types:planners and advice seekers

Analysing types of consumer behaviour found in the

study, four different consumer types emerged:

Non-planners: disengaged.This group has done

nothing by way of financial planning or financialadvice. There is a complex mix of reasons why

these people do not make a plan; many lack

the necessary household income. In total, they

account for 38% of all our respondents

Non-planners: advice-seekers. This group doesnot have a financial plan, though they do at least

take professional financial advice from time to

time. They are likely to seek advice around one

particular need rather than taking holistic advice.

They make up 12% of our respondents

Planners: active self-guided. This group hasa financial plan in place but does not seek

professional expertise to help them make sense of

their finances. This group accounts for 22% of our

respondents and is likely to be younger, mid-to-high

income and internet savvy

Planners: advice-seekers. This group does havea financial plan in place and it also seeks

professional financial advice to help manage their

finances. In many respects they are very well

prepared for retirement. They make up 28% of our

respondents. As we will see below, they are more

likely to be older and wealthier

Out of our total survey of 17,849 respondents, we find

that planners make up 50% (self-guided and advice

seekers combined). Women are significantly lesslikely to be undertaking financial planning; only44% do so, compared with 54% of men, perhapsreflecting the continued influence of traditional gender

roles. Worryingly, almost two-thirds of womenwho are approaching retirement age (50-59) do notplan for their financial futures.On a positive note,younger women are more engaged in their personal

finances than older women. Women in their 30s are

closer in their approach to financial planning to men,

which is a welcome trend demonstrating women

engaging more actively in their personal finances.

0

10

20

30

40

50

60

% All males All femalesMale

30-39

Male

40-49

Male

50-59

Female

30-39

Female

40-49

Female

50-59

5458

5149

4447

4238

Figure 18: Younger men and women more likely to have a financial plan

Q. Do you have a financial plan for you and your familys future?


Almost two-thirds of women

who are approaching retirement

age (50-59) do not plan for their

financial futures.

35


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Planners: advice seekers

Planners: active self-guided

Non-planners: advice seekers

Non-planners: disengaged22%

28%

12%

38%

Figure 19: The four consumer types


Planners enjoy not only the hard benefits of financial

planning (having greater savings and pension assets

compared to non-planners) but also the softer

benefits (being able to look forward to retirement with

a more positive mindset). There is clearly a strong

correlation between planning for retirement and feeling

good about retirement. While it is difficult to identify

cause and effect, we can nevertheless observe four

distinct profiles (demographically, behaviourally and

attitudinally) between those who have financial plans

and those who do not.

Non-planners:advice seekers

Planners:active self-guided

Planners:advice seekers

More likely to be female

and have an older profile

Least likely to be inemployment, more likely

than average to be on

a part-time basis

Likely to be in lower income

groups

More likely to be living in

the Americas and Europe

About half are single, with

above average numbers

co-habiting

Over half have nodependent children

Equal numbers of men and

women

Less likely than average tobe in full-time employment

Most likely to be on average

incomes


North America and Europe,

rare elsewhere

About half are single

Least likely to havedependent children

More likely to be male

and in their 30s

More likely than average tobe in full-time employment,

more likely than average to

be self-employed

Likely to be in higher

income groups


Asia or the Middle East

Likely to be married

More likely to havedependent children

More likely to be male

and in their 50s

More likely than average tobe in full-time

employment

Likely to be in higher

income groups


North America and Europe

Likely to be married

Most likely to havedependent children

Non-planners:disengaged

Table 1: Demographic profile of the four consumer types


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Argentina

Mexico

France

Canada

US

Poland

UK

HongKong

Brazil

SaudiArabia

UAE

Singapore

SouthKorea

Taiwan

India

China

Malaysia

25 25 30

35 36 38 40

46 51 56 57 58 59 60

76 7684

Global average (50)

10

20

40

60

%

80

90


Figure 20: Planners: an East-West divide

Q. Do you have a financial plan for you and your familys future? A. Yes

Looking at the planners by country in Figure 20,

we can see the familiar theme of the East-West

split emerging in which the people of the East are

actively planning for the future, while the West is

sleep-walking into the future

All the countries in the East (with the exception of

Hong Kong) have a majority of planners. This peaks

at 84% in Malaysia

This picture is reversed in the West (except in

Brazil) where the majority are non-planners. This

peaks at 75% in Mexico and Argentina

More likely to have a

conservative risk appetite

More reliant on social

security

Concerned about debt

levels and financial hardship

in retirement

Low expectations

of retirement income

Most worried about coping


More likely to have a

conservative risk appetite

Use savings products

but see state pension as

adequate back-up

Concerned about debt

levels and financial

hardship in retirement

High expectations of

retirement income, second

to advice seeking planners

More worried about coping


More likely to have

a moderate risk appetite

Most likely to rely on

savings and investments as

the main source of

retirement income

See retirement as a time of

freedom

Slightly above average

expectations of retirement

income, but lower than

advice seekers

Less worried about coping


More likely to have

a moderate risk appetite

Most reliant on private

pensions to fund

retirement

Positive outlook on

retirement, seeing it as a

time of opportunity

Highest expectations of

retirement income

Least worried about coping


Non-planners:disengaged

Non-planners:advice seekers

Planners:active self-guided

Planners:advice seekers

Table 2: Attitudes and behaviours of the four consumer types

37

hsbc study on retirement

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