impact of the euro debt crisis on the investment behavior of 50+ european investors

International Pensions Papers 1/2013

Impact of the Euro debt crisis on the investment behavior of 50+ European Investors

Allianz International Pension Papers 1/2013

2

MasthEad

Publisher Allianz SEKoeniginstrasse 2880802 Munich, GermanyPhone: +49 89 3800-0Fax: +49 89 3800-3425www.allianz.com

EditorsDr. Renate Finke, Senior [email protected]

International [email protected]

Closing DateFeb 8, 2013

Cautionary Note Regarding Forward-Looking statements

The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and / or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv) general competitive factors, in each case on a local, regional, national and / or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking statement.

No duty to update

The company assumes no obligation to update any information contained herein.

CoNtENts

03 Introduction

04 Key results

05 Impact of the euro crisis on the financial situation

05 Box: Survey sample and methodology

09 trust in the euro

10 References

11 Recent Publications


3


One of the major challenges for private investors preparing for retirement is coping with volatile financial markets. Whereas younger investors still have time to adapt and compensate for investment decisions which might not prove favorable, or which were influenced by negative market movements, people close to retirement do not have that luxury. The struggle around the euro debt crisis has had a big impact on market movements and performance of investments. It has increased uncertainty for investors, made products formerly perceived as secure and attractive seem much less so and has led to an investment landscape of financial repression. In this situation, it is interesting to know how people react to these developments – particularly those close to retirement.

Allianz International Pensions conducted a survey in seven European countries among wealthier people aged between 50 and 70. Countries included were Austria, France, Germany, Italy, Netherlands, Switzerland and the United Kingdom (UK). The main objective of the survey was to analyze the ideas of the 50+ generation about retirement income, planning for retirement and financial topics most relevant to this clientele in a financial environment characterized by uncertainty and volatility.1 In this report we focus on those results which address the recent financial developments, namely the euro debt crisis.

Introduction

1 The results on retirement planning are forthcoming, Q2 2013.


4

• A negative impact of the euro crisis on the personal financial situation is perceived especially in Italy and France. The majority of respondents in Germany and Switzerland notice no impact at all.

• More than half of Italian respondents save less money than before the euro crisis. But in the other countries surveyed the majority of respondents did not change their savings amounts.

• The main change in investment behavior is to reduce the risk and choose rather short-term investments. Respondents in the United Kingdom tend to maintain their investment behavior as before the crisis.

• Although there is a great deal of uncertainty around financial markets and how to invest in that environment, people in Austria, Germany and Italy largely trust the euro, more skepticism in euro-zone countries is found in France and the Netherlands. Though the largest skepticism is found in the UK.

• The vast majority of respondents across all countries surveyed think that there will be tax hikes and increasing inflation rates in the follow up of the debt crisis.

Key results


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People close to retirement or in their early years of retirement, probably thought that they had secured their retirement strategy and could rest on their laurels, but were instead faced with severe volatility and financial crises during the last decade. The euro-zone debt crisis continued this stream of uncertainty. Although it seemed the crisis had already peaked in the middle of 2012 when the president of the European Central Bank Mario Draghi released his statement to support the euro, the crisis will have an ongoing impact on financial markets with low yields and even negative real interest rates.

In such a situation of financial repression, investors lose money. Those nearing retirement age and those who have recently reached retirement, who planned on using part of their financial assets to generate an income stream for their retirement years, are faced with lower assets than previously anticipated.

But to what extent has the crisis already impacted the investment decisions of wealthier people aged 50 to 70? Among the five euro-zone countries, currently only Germans feel mostly unaffected. A majority of 62% say the crisis has had no impact on their personal financial situation. A similar result can be seen in Switzerland, which is not surprising as a non-European Union member with its own currency and a country perceived as a safe haven during the crisis. In contrast, the majority of French and Italian interviewees felt a negative impact from the euro crisis on their personal financial situation while Austrian respondents were split. (Chart 1)

Survey sample and methodology

All in all, 1,400 respondents from Austria,France, Germany, Italy, the Netherlands, Switzerland and the United Kingdom (UK) took part in the survey. It should be understood that this study is not representative of the entire 50-70-year-old population, but rather targets the wealthiest 20% of this specific age group.

For the objectives of retirement planning and investment, this subset is particularly interesting for two reasons. Firstly, given the low replacement rate of public pensions compared with this segment’s current income and living standards in most countries, financial planning is extremely critical. Secondly, since this group is likely to be more educated, they are also more likely to have the ability to master their own retirement strategy and investment decisions. The survey was conducted online in November 2012, in Austria in January 2013.

Impact of the Euro crisis on the financial situation


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2 See Allianz Global Wealth Report 2012, Deutsche Bundesbank (2012a) and Banca d‘Italia (2012)

These answers mirror the development of financial assets of private households in these countries. In Switzerland and Germany, overall assets saw an increase between 2010 and 2011, and again into 2012, whereas both France and the UK saw slight losses and Italian households faced a larger loss of 3% between the end of 2010 and the middle of 2012. In Austria financial assets remained unchanged.2 The picture in the Netherlands is mixed: although financial assets as a whole performed well, half of the older Dutch people felt the crisis has had a negative impact on their financial situation.

Although the general results seem as if people are quite relaxed, a statement concerning the euro tells a different story. In particular, French and Italian respondents fear for the safety of their savings (69% and 60% respectively) followed by Germans (48%) and Austrians (38%) whereas the Dutch seem more relaxed (32%).

C h a R t 1: Impact of euro crisis on financial situation

་

Q u E s t I o N : does the euro crisis have any impact on your financial situation so far? B a s E : Top 20% of 50-70 year old people regarding investable assets

The euro crisis has no impact on my financial situation so far

The euro crisis has negative impact on my financial situation

The euro crisis has positive impact on my financial situation

Don’t know / no answer

62

34

48

33

15

Austria (n=200)

France(n=202)

Germany(n=200)

Netherlands(n=200)

Switzerland(n=200)

UK(n=199)

Italy(n=201)

43

47

91

30

62

53

3

57

33

73

3

1

39

54

71

24

71

05


7

One would expect people to adapt to a new situation. Therefore, it is not surprising that German and Swiss people have not changed their savings behavior, as most of them did not feel any impact of the euro crisis on their financial situation. However, the majority of those interviewed in Austria, the Netherlands, France and the United Kingdom also did not change their habits. (Chart 2) Only Italy is outstanding in that one out of every two respondents said that they now save less. This might be due to the weaker economic situation in Italy and lower wages that result in a reduced ability to save. On the other hand, we also have to note that the interviewees were between the ages of 50 to 70, where people might not be so inclined to save so much.

Even if people do not change their behavior with regard to the amount they save, they do review their investment attitudes. For most of the interviewees, the main reason for change in invest-ment behavior is to reduce risk, for example the majority in France and Italy state that they take care to ensure that their investments are not so risky. (Chart 3) They might pay more attention to this issue as French and Italian households used to invest a higher portion of their financial assets in capital market products than the average household in Western Europe. In the Netherlands,

C h a R t 2: Change of saving behavior due to euro crisis

Yes, I save more than before

Yes, I save less than before

No, my saving behavior has not changed


Austria (n=200)

France(n=202)

Germany(n=200)

Netherlands(n=200)

Switzerland(n=200)

UK(n=199)

Italy(n=201)

Q u E s t I o N : did you change your saving behavior due to euro crisis compared to the time before the crisis? B a s E : Top 20% of 50-70 year old people regarding investable assets

7

14

79

0

8

18

70

4

6

90

2

312

23

64

1

15

51

31

3

9

8

80

3

18

11

69

3


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households have a very conservative asset structure, so risky investments are not a part of their investment focus.3 Most of them have not changed their investment behavior.

A similar situation can be found in the United Kingdom, where 53% say that their investment behavior did not change. In Austria as well as in Germany – besides avoiding risky assets – almost half of interviewees invest their money somewhat short-term. In Germany this behavior could already be observed a couple of years ago when volatility in financial markets began to increase and uncertainty dominated due to financial and debt crises. Since then, Germans prefer to put their money into accounts that are accessible at short notice.4

The risk aversion of the 50 to 70 year olds in our survey is also apparent in the low consent to the statement “I invest more money in stock than before.”

C h a R t 3: Change of investment behavior due to euro crisis

I keep care that my investments are not so risky

I invest money rather short-term now

My investment behavior has not changed

I bought real estate or plan to buy one

I bought gold or precious metals

I invest more money in stock than before

I start to invest with a higher level of risk than before

I make investments not in euro anymore, but in other currency

51

22

45

14

4

3

12

2

Austria (n=200)

60

24

18

18

1

1

5

1

France(n=202)

48

26

46

16

7

3

7

2

Germany(n=200)

38

45

5

4

7

1

2

1

Netherlands(n=200)

46

32

15

19

9

17

12

2

Switzerland(n=200)

26

53

14

3

3

5

2

1

UK(n=199)

54

14

38

13

8

6

6

4

Italy(n=201)

Q u E s t I o N : What about money investment. how has the euro crisis changed your money investment behavior? Which of the following statements apply to you? B a s E : Top 20% of 50-70 year old people regarding investable assets

3 Allianz Global Wealth Report 2012

4 See Deutsche Bundesbank (2012b) and Allianz (2012)


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Although there is a great deal of uncertainty around financial markets and how to invest in that environment, people in the euro-zone largely trust the euro – particularly in Austria, Germany and Italy, where 50 %, 44% and 36% (respectively) claim to back the currency (Chart 4). In the Netherlands, only 29% claim to trust their currency, whilst 38% are undecided. The largest skepticism is found in France, where hardly a fifth of respondents trust the euro and 42% remains undecided. But this result is topped by people in the United Kingdom, where 75% of respondents do not trust the European currency.

Although the Netherlands are not so enthusiastic, the majority (65%) still admit that they benefit from the euro and more than every second German and Italian see benefits, whilst half of the respondents in UK do not see any benefits for their country.

Nevertheless, the reason for the euro crisis has still not been solved. Government debt levels are still excessively high. The majority of around 80% of respondents think that there will be tax hikes and this opinion is more or less equal across all survey countries. The same holds for expected inflation development. Across all countries the majority of people see inflation increasing – 80% in Germany and the UK, around 70% in Austria, France, Switzerland and the Netherlands, whilst only 56% of Italians see inflation rates rising. Right now, in an environment with yields and interest rates below inflation rates, it seems as if there is a “smooth” solution. But the results indicate that people fear more “severe” ways out of the crisis.

Trust in the euro

C h a R t 4: Trust in the euro

Q u E s t I o N : there is a lot of discussion about the euro crisis in public lately. do you currently trust in the euro to be a strong currency? B a s E : Top 20% of 50-70 year old people regarding investable assets

Yes, definitely

Rather yes

Partly

Rather not

No, definitely not


Austria (n=200)

France(n=202)

Germany(n=200)

Netherlands(n=200)

Switzerland(n=200)

UK(n=199)

Italy(n=201)

11

3940

2423

1418

11 151 0

4 8 815

2821

18

42

24 38

24

16

26 2216

31

32

11 16 13 21

44

3 3 4 3 4

3 3 3


10

Allianz Global Wealth Report 2012, Economic Research & Corporate Development, 2012

Allianz (2012), Slight increase in gross financial assets, International Pension Issues 1/2012

Banca d’Italia (2012); Supplements to the Statistical Bulletin, Monetary and Financial Indicators, Financial Accounts, Volume XXII – 6 November 2012 No. 57

Deutsche Bundesbank (2012a), Monthly Report, December 2012.

Deutsche Bundesbank (2012b), Acquisition of financial assets and financing in Germany in the second quarter of 2012, October 2012.

References


11

Recent Publications

What’s happeneing in the Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012Country Factsheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 Why Saving on a Regular Basis may be Wise! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012Routes to Private Pensions in China – A Scenario Analysis of China’s Private Pension Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012Design Retirement Attitudes and Financial Strategies of the Affluent 50+Generation in Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 Wanted: Flexibility in Retirement Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012Germany – Slight increase in gross financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20122011 Pension Sustainability Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011Pensions in Turkey – A Race against Informality and Low Retirement Ages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011Fiduciary Management: Meeting Pensions Challenges in Europe – Results of an Expert Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011Putting the Retirement Pieces Together: Strategies of the Affluent 50+ Generation in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011UK – on course for an innovative pension system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011Better Prepared for Retirement – Europe or the United States? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010Doing Good by Investing Well? Pension Funds and Socially Responsible Investment: Results of an Expert Survey . . . . . . . . . . . . . . . . . . . . 2010Demographics in Focus II – Ageing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010Real Retirement Income: The Impact of Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 http://projectm-online.com/research

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