The Future of Retirement - The Wall Street...

The Future of Retirement Foreword1

The Future of RetirementThe power of planning

Global Report

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

Contents

Foreword 4

Introduction 4

The research 5

Executive Summary 6

Part One The 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 structures have on high savings rates in Asia? 20

Case study: The joint family system in India 21

Part Two Shortfalls 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 Three Making 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

Conclusions Supporting 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

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The 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 planning is our sixth report and the most action oriented to date.

A key tenet of HSBC’s strategy is to anticipate, understand and act upon global macro trends. One of these trends is the ageing of the world’s 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 planning is this year’s 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 and Group Head of Insurance, HSBC

This year’s 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

HSBC’s 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 programme began 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 CanadaChinaFranceHong KongIndiaMalaysiaMexicoPolandSaudi ArabiaSingaporeSouth Korea TaiwanUnited Arab EmiratesUnited KingdomUnited 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 world’s population of over 65s set to increase from 550 million today to over 1.4 billion by 2050,i the 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 America are 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 people’s 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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The Future of Retirement Executive Summary6

Executive SummaryThe 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 not be 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 retirement as 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 divide in 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 associated with the benign economic conditions and growing wealth in the emerging markets where, 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 concerned by 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 death of 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 (rather than caring for elderly relatives) will leave them worse off in retirement than their parents. Where we 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 today’s 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 to save (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 in the 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.

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There are major global shortfalls in retirement preparedness

41% of our survey felt that they were under-prepared for retirement to some extent, while 64% admitted to being concerned that they would not be able to cope financially in retirement. The findings reveal that women aged between 50 and 60 (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 not know what their main source of income would be in retirement. Only 16% thought it would come from 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 very real benefits of financial planning: respondents who have a financial plan in place enjoy a clear ‘planning premium’ with hard financial benefits. Not only do they 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 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.

Alongside these quantifiable financial benefits, these planners enjoy soft benefits such as a much more positive outlook towards later life, and they worry less about coping financially in retirement.

Given the demonstrable positives of planning, an encouraging picture emerges among younger respondents, with relatively high numbers undertaking 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 seek professional 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-half times (357%) the retirement assets and over five times (518%) the non-retirement assets of those who 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 split between those 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 an important factor (15%), particularly for those in higher income 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 session should last no longer than 30 minutes and should focus on their immediate needs. Reassuringly, those with financial plans in place generally review them on a regular basis.


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 nearly half 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 world’s 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, as well 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 consumer’s 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.

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50% 50% did not have a financial plan.

The Future of Retirement Part One10

People have a generally positive image of retirement, with nearly half (48%) associating retirement with freedom. 48%

Part OneThe 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% think that 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 over one-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

“Don’t 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 society’s current 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 end but 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 living arrangements and health.

While there is a general sense that retirement is an age of freedom (Figure 1), this view is more prominent in many (though not all) Asian societies. In addition, while it is clear that in the East freedom and work go together in retirement, freedom in the West is defined more narrowly as being freedom from work.

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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 people’s 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 (those aged over 50) are likely to be much less confident about retirement.

At some point during a person’s 40s and 50s, the reality dawns that they haven’t 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.

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Figure 2: Reality dawns for those nearing retirement



� It is clear from Figure 2 that there is a significant relationship between a person’s 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 experience grow 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

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Other important lifestyle changes

Interesting attitudes to other important lifestyle changes also emerge in the findings. In particular, there is a widespread fear that ill-health will come to play a significant role on people’s 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 people’s financial plans: only 40% of those with a financial plan currently have medical expenses insurance

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 people’s 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 the emergence of an East-West divide

Underpinning the attitudes expressed above, it is clear that few of our respondents expect to have a similar experience of retirement to their parents. The concept of a ‘traditional’ retirement appears to be eroding. But, what is considered traditional is 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 country’s 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

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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 entitlement and 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 ininvestment 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 generation of workers who think that they will be poorer in retirement than their parents (Figure 5). One of 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 contract’xi seems 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 President’s 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:

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�� 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 plus 69% (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)

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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 ‘slightly’better 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 NorthAmerica


East

Figure 7:

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Global average (45)

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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

What we are seeing now is the very real downside of what has been referred to as the ‘great risk shift’ in which society’s response to increasing life expectancy is to expect the younger generations to shoulder the savings and investment risk burdenxii. Our findings illustrate that today’s workers in the industrial countries of the West have already acknowledged that a major transfer of risk is taking place and are concerned about its 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, India’s per capita gross national income rose by a staggering 87% from USD630 in 2004 to USD1,180xiii. While still low compared by international standards, people’s life chances 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 are more likely to see retirement as a time of freedom (Figure 8).

As an extension of this greater optimism and confidence about retirement, Asian respondents also demonstrate much greater confidence in terms of their risk appetite; in comparison, respondents in the West 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 notably higher 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 being implemented post-financial crisis

Europe NorthAmerica


East

Figure 9:

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49Global average (48)

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Figure 8: Retirement means freedom

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



The changing role of family in funding retirementA 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 children’s 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 have on 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 only child 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 relatives is a much greater concern as a potential cause of 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.

NorthAmerica

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2124 24 25

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Europe LatinAmerica AsiaMiddle

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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. I’m 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

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 Indians with 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 - almost double 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 people’s 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

The Future of Retirement Part Two22

Part TwoShortfalls in retirement preparedness

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

23

�� 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 can’t fill the retirement gap: 60% of those with no financial plan claim they don’t 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 in retirement

�� 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. Where women do control the household finances, they are more concerned with short-term financial issues such as household budgeting

“The question isn’t at what age I want to retire, it’s 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 people’s 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 first pillar of 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 pillar of provision, employer contributions made on the employee’s behalf, or the third pillar of provision, 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, and where 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 global shortfall in retirement preparedness, with 41% of our survey feeling underprepared for retirement (Figure 10). Only one-fifth (19%) actually feel like they are ‘very prepared’ for later life. 64% of our 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 on short-term financial issues such as building up short-term savings and taking charge of household budgeting

�� In contrast, men are more likely to be engaged in more complicated financial planning involving 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 the world’s favourite form of retirement savings chosen 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

Figure 11:

Somewhat prepared

Very prepared

Not very prepared

Not at all prepared

Not applicable

19% 19%

37% 37%

26% 26%

15%3% 3%

15%

Figure 11:

Somewhat prepared

Very prepared

Not very prepared

Not at all prepared

Not applicable

19% 19%

37% 37%

26% 26%

15%3% 3%

15%

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

Figure 12:

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Important Prepared

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Global average of importance (88)

Global average ofpreparedness (56)

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Figure 12:

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Important Prepared

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In this report, we look at the gap between the importance of preparing for retirement relative to an individual’s 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, China’s 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 don’t know the answer to this question.

Figure 13:

%

Don’t 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

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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 ‘Don’t 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 isn’t 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

Figure 14:

% 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 during your retirement? A. State pension (eg social security)


27

Figure 15:

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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 largestproportion 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 year’s survey we asked a number of questions relating to the UK’s 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 don’t 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 and education of consumers.


� Mexico’s 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 Hong Kong (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 redefine aspirations 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 this year’s findings is the need for all governments to quickly review current state pension ages. Working longer beyond current retirement ages will necessarily be part of the solution, as the UK’s 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 Age”xxi. Carrying on in paid employment is one solution to filling the retirement funding gap.

� This conclusion has already been made by those 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 reluctant to 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

2929

Figure 16:

Got first full-time job

Got married for the first time

22

2726

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18

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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 anticipated retirement age is remarkably similar to current official retirement age. This is true even though some of 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 people’s 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 also increasing people’s ‘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 people’s long-term preparedness, as well as looking at what can be done to encourage greater levels of personal savings and investment.

Figure 17:

State retirement age (men)Anticipated retirement age (men)

Latin America

MiddleEast

Europe

Hong Kong

Taiwan

Singapore

South Korea

China

India

Malaysia

UAE

Saudi Arabia

Argentina

Mexico

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Age (years)655550 60

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Figure 17:

State retirement age (men)Anticipated retirement age (men)

Latin America

MiddleEast

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

6060

6565

6565

6565

6565

6665

6565

6565

6262

Figure 16: State retirement age drives expectations

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

Base: Male respondents

31

Anticipated retirement age is remarkably similar to current state retirement age.

The Future of Retirement Part Three32

Part ThreeMaking the most of the planning premium

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

“He who fails to plan, plans to fail.” Winston Churchill

�� 50% of respondents claim that they do not have a financial plan. When asked why, the majority of these people (60%) claim they don’t have enough money. However nearly a quarter (23%) claim they do not know how to go about making a financial plan, while 15% said that they do not have enough time and a further 15% do not think it would be useful

�� 60% have never sought professional financial advice, which helps to explain why people’s financial plans contain serious gaps. Only 52% specifically save for retirement even though 88% said having sufficient income in retirement was important, while only 40% are planning for medical expenses even though 74% are worried about the impact of ill health on their retirement savings

�� A positive finding appears among younger women, who are more engaged in planning their financial future than women from older generations, and are displaying financial planning behaviours more in line with men. However, where couples share the financial decision-making process, they are more likely to procrastinate: 41% of couples who make household decisions together do not act on professional advice, compared to nearly half of single decision-maker households

�� A ‘planning premium’ emerges in which households with financial plans enjoy two distinct advantages. Firstly, those who undertake financial planning enjoy hard financial benefits: not only do they hold a much broader range of financial assets at their disposal to fund their retirement, but also the value of those retirement assets is likely to be significantly greater. The planners are amassing two-and-a-half times as much in their retirement savings as non-planners. Secondly, the planning premium includes softer benefits such as enabling people to feel more confident about later life, and to worry less about coping financially in retirement

�� Those who combine financial planning with professional financial advice enjoy the best of both worlds with retirement assets close to USD50,000 – over three times more than the non-planners – demonstrating an ‘advice advantage’

�� The planning premium and advice advantage also apply to non-retirement savings and investments. Planners have amassed over three times more (219%) than non-planners in their non-retirement assets. On average, those who take professional advice and have financial plans have amassed over five times (418%) the non-retirement assets of those who do neither

�� Many households would be receptive to professional advice sessions if they were kept short: 41% favoured a 30-minute advice session focussed on their immediate needs

�� 34% used on-line research from official websites to help them make financial decisions

�� Five practical steps have been identified to help individuals develop a financial plan, based on the survey’s findings

Key findings

33


In future, much greater emphasis needs to be placed on how people plan for their retirement. This will require wide-ranging intervention, through national financial education programmes, wider access to financial advice, and marketing campaigns. More controversial methods may also come into play, such

as the mandated savings schemes as discussed in Part 2. Ultimately, it will be the responsibility of individuals to make greater financial provision for their own retirement. We explore what this means in more detail below.


Figure 18:

Planners

Non-planners

50%

Don’t think it would be useful

Don’t have enough time

Don’t know how to go about it

Don’t have enough money

15%

15%

23%

60%50%

Figure 18:

Planners

Non-planners

50%





15%

15%

23%

60%50%

Figure 18:

Planners

Non-planners

50%





15%

15%

23%

60%50%

Figure 17: Planners and non-planners

Base: All respondents Base: Respondents answering that they do not have a financial plan, multiple responses allowed

�� Overall, half (50%) of our global respondents do not have a financial plan

�� Among the 50% who do not have a plan, the biggest single obstacle was not having enough money (60%)

�� 23% simply did not know how to go about it

�� A further 15% did not have enough time and a further 15% did not think it would be useful: this represents a sizeable minority who prefer to attach a higher priority to other (possibly more immediate) pressures on their time and money

The continuing financial advice and planning gap

Q. Do you have a financial plan for you and your family’s future?

Q. Why do you not have a financial plan?

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 financial advice. 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 does not 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 has a 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 have a 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 less likely to be undertaking financial planning; only 44% do so, compared with 54% of men, perhaps reflecting the continued influence of traditional gender roles. Worryingly, almost two-thirds of women who are approaching retirement age (50-59) do not plan 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 femalesMale30-39

Male40-49

Male50-59

Female30-39

Female40-49

Female50-59

5458

51 4944

4742

38

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

Q. Do you have a financial plan for you and your family’s future?


Almost two-thirds of women who are approaching retirement age (50-59) do not plan for their financial futures.

35


Figure 19:

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.


Planners:active self-guided

Planners:advice seekers

More likely to be female and have an older profile

Least likely to be in employment, 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 no dependent children

Equal numbers of men and women

Less likely than average to be in full-time employment

Most likely to be on average incomes

More likely to be living in North America and Europe,

rare elsewhere

About half are single

Least likely to have dependent children

More likely to be male and in their 30s

More likely than average to be in full-time employment, more likely than average to

be self-employed

Likely to be in higher income groups

More likely to be living in Asia or the Middle East

Likely to be married

More likely to have dependent children

More likely to be male and in their 50s

More likely than average to be in full-time employment

Likely to be in higher income groups

More likely to be living in North America and Europe

Likely to be married

Most likely to have dependent children

Non-planners:disengaged

Table 1: Demographic profile of the four consumer types

Figure 20:

Arg

entin

a

Mex

ico

Fran

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Can

ada

US

Pola

nd UK

Hon

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Bra

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Sau

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UA

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Sin

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Taiw

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Indi

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Chi

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Mal

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a

25 2530 35 36 38 40

46 5156 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 family’s 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 financially in retirement

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 financially in retirement

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 financially in retirement

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 financially in retirement

Non-planners:disengaged


Planners:active self-guided

Planners:advice seekers

Table 2: Attitudes and behaviours of the four consumer types

37


Figure 22:

%

0

5

10

15

20

25

30

35

40

45

Planners

Non-planners

18

3436

40

Yes, I am very worried

Yes, I am slightly worried

%

Figure 21:

0 10 20 30 40 50 60

Non-plannersPlanners

22

22

13

8

11

18

28

28

20

42

27

24

53

2714

15

16

10

15

19

21

22

23

24

3927

28

31

40

43Freedom

Happiness

Satisfaction

Wisdom

Opportunity

Wealth

Excitement

Hope

Discrimination

Loss of memory

Fear

Loneliness

Boredom

Financial hardship

Poor health

%

Figure 21:

0 10 20 30 40 50 60

Non-plannersPlanners

22

22

13

8

11

18

28

28

20

42

27

24

53

2714

15

16

10

15

19

21

22

23

24

3927

28

31

40

43Freedom

Happiness

Satisfaction

Wisdom

Opportunity

Wealth

Excitement

Hope

Discrimination

Loss of memory

Fear

Loneliness

Boredom

Financial hardship

Poor health


Base: Respondents answering ‘very’ or ‘slightly’ worried

Figure 22: Planners worry less about retirement

Q. Are you worried that you will not be able to cope financially when you retire?

Figure 21: The softer benefits of planning


The planning premium: the softer benefits

�� Over half of the planners (53%) think of retirement as a time of freedom, compared to 43% of non-planners (Figure 21)

�� Those without plans are much more likely to think of retirement as a period of financial hardship (40%), falling to just 24% of the planners

�� The non-planners are almost twice as likely to be very worried that they will not be able to cope financially in retirement (Figure 22)

The message which is being lost on non-planners is that for many of them, it is within their power to take

the necessary steps to ensure that they avoid financial hardship.

The planning premium: the hard benefits

Analysis of the types of products and levels of savings over our four consumer types reveals firm evidence

for the benefits or ‘premium’ derived as a result of financial planning.

Table 3: Planners have a wider range of retirement savings and investmentsQ. Select the types of products you and your partner currently use to save and invest specifically for funding retirement. Base: All respondents, multiple responses allowed

Products used for funding retirement

(% of households with)

Global average

%

Non-planners:

disengaged %


%

Planners: active self-

guided %

Planners: advice

seekers%

Defined benefit pension scheme 15 10 15 18 21

Defined contribution pension scheme 15 10 15 16 22

Individual personal pension scheme 15 9 14 17 22

Mutual funds and investments 22 10 20 27 34

Insurance (eg endowments, investment-linked insurance) 30 18 24 38 42

Cash savings account 44 33 41 52 52

Term savings accounts and bonds 23 15 21 27 33

Employee stock/share schemes 11 6 10 13 17

Product holdings

� Across all product holdings, the planners enjoy the broadest range of financial assets for funding retirement. This includes the most common types of retirement planning products

� The most popular retirement products are cash savings, which are used by over half (52%) of all planners. This falls to just 33% of the disengaged non-planners. The next most popular product is investment-linked insurance products used by around two-fifths of all planners. Again, this falls to around one-fifth of non-planners

� Advice seeking planners enjoy greater membership of defined benefit (final salary) pension schemes which may ultimately provide them with the most adequate retirement income of any of the four consumer types. However, given the current trends in defined benefit pension schemes, the ability to rely on such schemes may prove to be limited

� The non-planning advice seekers are doing well in some areas, such as saving in endowments and defined contribution pension funds, but this is sporadic. They don’t fully enjoy the benefits of financial advice when we compare their financial assets to those advice -seekers who already have a plan in place

39


Table 4: Planners have more retirement savings and investments Q. Thinking about the types of products you currently use to save and invest specifically for funding retirement, approximately how much have you and your partner saved and invested to date? Base: All respondents, multiple responses allowed

Global average*

Non- planners:

disengaged

Non- planners:

advice seekers

Planners: active

self-guided

Planners: advice

seekers

All non- planners

Allplanners

Total retirement savings and investments (household

median) USD

29,504 13,997 30,607 33,301 49,952 16,849 41,142

% of global average 100% 47% 104% 113% 169% 57% 139%

*Typical fund values vary greatly between high-income and middle-income countries.

Table 5: Planners have more non-retirement savings and investments Q: Thinking about the types of products you currently use to save and invest for reasons other than for funding retirement, approximately how much have you and your partner saved and invested to date? Base: All respondents, multiple responses allowed

Global average*

Non- planners:

disengaged

Non- planners:

advice seekers

Planners: active

self-guided

Planners: advice

seekers

All non- planners

Allplanners

Total non-retirement savings and investments (household

median) USD

19,981 7,652 18,182 23,636 39,645 9,733 31,087

% of global average 100% 38% 91% 118% 198% 49% 156%

*Typical fund values vary greatly between high-income and middle-income countries

Asset values

� Confirming the planning premium still further, we see that the planners not only have a broader range of product holdings, but also hold above average asset values in both retirement and non-retirement savings and investments

� The planners have amassed an average of USD41,142 in retirement savings, which is 39% above the global average. This compared favourably to just USD16,849 for the non-planners, which is 43% below the global average

� This means that the planners have nearly two-and-a-half times more in retirement savings when compared with the non-planners

� The planners have also amassed greater value of savings and investments for non-retirement too. Here, the Planners have amassed on average USD31,087. This is over three times more than the non-planners

The advice advantage

Alongside these confirmations of the planning premium, we also find that those who have a financial plan in place and seek professional advice are the best-off financially. Advice seekers are amassing more into retirement and non-retirement savings when compared to all other consumer types, including the more youthful self-guided planners.

� They enjoy the widest range of savings and investments for retirement. For example, Table 3 shows that 42% hold investment-linked insurance products such as endowments, which compares to 38% of those planners who do not take advice and 18% of those who neither plan nor take advice

� We found that those who plan their retirement finances and seek financial advice have amassed on average USD49,952 for retirement. This is three-and-a-half times more than those non-planners who are disengaged

� The value of their retirement savings is 69% above the global average compared to 13% for the active self-guided planners while those who neither plan nor seek advice are 53% below (less than half) the global average

� Notably, all of our consumer types have similar anticipated retirement ages irrespective of their retirement planning behaviour and the huge differentials in retirement wealth. Both of the non-planning groups expect to retire at 63 years. This compares 62 years for the advice seeking planner and 61 years for the active self-guided planner. In reality, some of the non-planners may end up having to work well into their 60s

The findings clearly show that those with a financial plan are better off than those without – a ‘planning premium’. Even if they have

insufficient funds to meet their future needs, they are still more likely to have more financial assets and greater diversity of income in retirement, as well as feeling more positive about retirement. Households will be at a further advantage where they are seeking professional financial advice. The combined effect of the planning premium and advice advantage means that households which do both will be the best-off in retirement

When we looked at the findings within the different age and income groups we found that both the planning premium and advice advantage are still present. It is not simply the case that people enjoy greater retirement assets because they are older or wealthier. It is the result of their planning behaviour.

41


“Plan for the future, because that’s where you are going to spend the rest of your life.” Mark Twain

34% 34% used online research from official websites to help them make decisions

Harnessing the power of planning

Figure 25:

AsiaMiddleEast

LatinAmerica

NorthAmerica

Europe

Pola

nd UK

Fran

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Can

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US

Bra

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Mex

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Arg

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37 39 39 39

22

34

5056 56

43 4549 51

5560

64

Global average (46)

0

%

20

40

60

80

44


Figure 23: Family and friends an important advice channel

Q. When considering financial products like savings, investments and insurance, which of the following activities do you do to help make decisions? A. Speak to family and friends

Figure 24:

Fran

ce

Pola

nd UK

Can

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US

Bra

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Mex

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Arg

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0

10

20

30

40

50

29

45

2629

20 22

3933

47

19

29

3639

45 46 46

27

Global average (34)

%

Europe NorthAmerica

LatinAmerica

AsiaMiddleEast


Figure 24: The internet as a financial tool

Q. When considering financial products like savings, investments and insurance,which of the following activities do you do to help make decisions? A. Online research from official websites

Having demonstrated that there are clear benefits to be gained from a financial plan, the major challenge is now how best to encourage households to start planning. Improving levels of consumer engagement in personal finances is a natural starting point, particularly in the West.

Among groups such as young men who might previously have been disengaged consumers, we are seeing greater financial engagement as a result of

the internet. This may signal a long-term trend in which younger people are increasingly ‘doing it for themselves’. Research elsewhere has suggested that younger people in particular are increasingly likely to find comfort in the ‘wisdom of peers’, particularly in looking for guidance from lifestyle peers and age cohorts in the online communityxxii. This correlates with our findings which show that planners who do not seek advice – who are predominantly younger than planners who do seek advice – are more likely to undertake online research.

43


The role for the financial services industry

The financial services industry clearly has a strong role to play in reaching out to consumers through brand-led marketing campaigns which stress the value of retirement products and advice services. According to recent research by the Consumer Financial Education Body (CFEB), company reputation was seen to be the second most important factor in financial decision making. The research also found that ‘brand salience tips the balance for young consumers where financial education is limited‘xxiii. This is significant because currently one in six people are put off planning because they do not know how to go about it. Overcoming this lack of awareness through the use of brands and marketing would be particularly beneficial to younger people, with 23% of those aged 30-39 years not knowing where to access a good financial adviser.

The importance of getting the right message

In order to build engagement, it is clearly critical that you have the right message in place: one which is most likely to resonate with consumers and provide a ‘trigger’ which spurs consumers into action. Our findings revealed that the most common trigger was the need to ‘make my money work harder‘, chosen by 43% of respondents. This perhaps reflects the fact that today’s retirement planners find themselves living in an age where low interest rates prevail and where the kind of investment returns enjoyed by their parents throughout the latter part of the twentieth century are increasingly difficult to find. In many parts of the world, particularly emerging economies which continued to grow strongly throughout the global downturn, investors now also have to grapple with inflation, which requires them to adopt a more risky investment strategy in order to achieve inflation-adjusted returns. It is in seeking these higher investment returns that the value-add of the financial adviser becomes apparent.

Interestingly, this desire to make their money work harder seems to be a much more powerful trigger than important life events such as having a child (selected by 10%) or getting married (selected by 8%). Nonetheless, life events will still play an important role in encouraging the take-up of financial advice as we see below. The challenge is to make younger age groups see the benefits of financial advice. Currently, the take-up of advice is concentrated among those in the 50s or older, by which time it might be too late to make the most of that advice.

It is important to consider that different triggers will have different degrees of salience depending on the profile of the individual. Messages therefore need to be closely tailored to reflect the life events and life stages of distinct groups of individuals.

For example:

� Getting married was twice as likely to encourage men to seek financial advice compared to women

� Receiving a pay rise or promotion at work also motivated more men to take financial advice

� Receiving a windfall or inheritance is most likely to influence those in their 60s to seek financial advice

� The over 60s were also 2.5 times more likely than younger respondents to be prompted by approaching retirement

� The self-employed were particularly motivated by wanting to reduce their tax bill

The financial advice model of the future: short, focused and easy to understand

The solution to building consumer engagement will also require improvement in the regulation of financial advice and broadening the scope of advice to become more needs-based. Ensuring that the adviser’s mix of products and services is as broad as possible, based on genuine consumer needs, would help to instil greater trust in the industry as well as preventing consumers from failing to identify broader areas of long-term financial planning needs. The potential for gaps in financial plans emerges as a particular concern around protection and insurance, where there is a requirement to close the shortfalls in product penetration in areas of growing consumer need:

� Overall we found that 74% of global respondents have identified concerns about the impact of ill-health on their retirement

� However, while acknowledging the potentially adverse impact of ill-health on household outgoings (through additional medical expenses), only 40% are making plans to cover such unforeseen events

� Protection needs are even less well covered with only 28% of global respondents currently seeking

�� Overall, 46% of global respondents sought advice from family and friends, which provides a good proxy for judging whether people are aware of, and interested in, their financial needs (Figure 23)

�� The world’s super-savers, those emerging markets with high household savings ratios, are more engaged: more people in Asian and Middle Eastern markets are discussing their financial affairs with family members; in Malaysia this peaks at 64% while China stands at 60%

�� In contrast, this falls to just 22% in Brazil (who

appear to be least engaged) and 37% in Poland. Respondents in Western Europe fared little better on 39% in both UK and France

�� We see similar trends emerging when we consider those who access financial guidance via websites (Figure 24). Again, the Asian and Middle Eastern markets generally perform well (except Hong Kong and South Korea). Western countries all perform below the global average (except the UK). The UAE and India come out top globally on 47% each. Again, the respondents in Brazil appear to have low levels of engagement

45

Consumers told us that their ideal advice session would be short, focussed on their immediate needs and easily understandable.

to protect their assets. The role of protection insurance – vital for avoiding financial hardship and protecting all household financial assets, including one’s retirement pot – remains a ‘Cinderella’ product often overlooked by consumers

Like retirement itself, the concept of financial advice needs to be redefined. Currently, it is often seen to be time consuming and complex:

� One in seven people said that they did not seek financial advice because they were too pressed for time (implying that they perceived advice sessions to be lengthy)

� One in ten said that they did not understand financial advice

The financial services industry therefore needs to create a greater understanding among consumers that financial planning is something which can be provided cost-effectively, in a format which is regular with minimum time and effort. This issue is relevant for ‘cash-rich, time poor’ households, where a successful

career provides them with the financial means to plan ahead, but it leaves them with little time to get round to it. We asked respondents how long their preferred advice session would be:

� 41% of respondents said that having a 30-minute appointment to help find a solution for their individual needs was most preferred

� This was a slightly more popular response among those in their 30s who feel more time pressured. This was also more likely to resonate with those in full-time employment and those on higher incomes

� It was also very popular among those who currently seek financial advice via their bank with 55% of this group preferring a 30-minute interview

Regulators can play a constructive role to balance the necessary consumer protection requirements on communications, disclosures and processes with the need to encourage greater consumer access to professional financial advice.

45


The role for individual households

In combining the power of financial planning with the desire for shorter advice sessions the clear message to consumers should be quite simple: you cannot do everything in half an hour but you can make a start. Deciding to start planning is the really critical decision. Our findings show that once an individual has made a start, most planners are receptive to reviewing those plans on a fairly regular basis.

With most people likely to keep their financial plans under regular review, the process of short, sharp advice sessions, lasting no longer than 30-minutes at a time, could be used on a regular basis to remove the need for three or four-hour planning sessions addressing all people’s financial needs in one go. This approach to providing advice strongly overlaps with the experience of successful campaigns to affect consumer behaviour change as we see below.

Figure 26:

% Within the last year

1-3 years ago 4-5 years ago 6-10 years ago More than 10 years ago

61

25

83 30

10

20

30

40

50

60

70

Base: Respondents answering that they have a financial plan

Figure 25: Financial plans are regularly reviewed

Q. When did you last review your financial plan?

�� Around two-thirds of planners (61%) have reviewed some element of their financial plan within the last year suggesting that most remain relatively engaged in keeping that plan up to date

�� A further 25% have reviewed some element of their plan in the last 1-3 years

�� The remaining 14% review their plans less frequently than that

The importance of setting realistic and achievable targets

The principles of behaviour change campaigns are well understood and follow a basic rule: they must ensure that whatever people are being asked to do is considered to be realistic and achievable. This is referred to as the ‘practical behavioural model’xxiv Expecting people to develop a detailed financial plan in one go, which provides a financial safety net covering all of their savings, investment and protection needs, might be considered unrealistic by many people, especially given the significant constraints on people’s time and money. Where decisions about long-term financial planning appear complex or daunting, households are liable to procrastinate: making no decision at all is often preferred to taking a decision where the risks and consequences are poorly understood.

Couples need to be aware that this tendency to procrastinate is actually greater in households where more than one person is involved in the financial decision-making process. Households where the financial decision-making is shared are less likely to act on financial advice (41% do so). This is compared to those households where there is a sole decision-maker (47% did so), suggesting that joint decision-making is likely to lead to greater procrastination (i.e. two people will talk themselves out of taking action or one assumes the other is taking action).

A successful call-to-action will need to take financial planning and break it down into manageable steps. Where financial decision-making is shared it needs to be clear who is responsible for implementing each part of that plan. Applying the insights from our global consumer survey to the key findings from previous behaviour change campaigns elsewhere, we have set out the five steps people should consider in order to develop greater levels of financial planning. Communicating this simple approach, in which actions are broken down into clear and realistic action points, will help households to respond positively to the call to plan for their retirement. Such an approach also fits more neatly within the kind of short, 30-minute advice session focussed on immediate needs preferred by 41% of our respondents.

47


Only 19% felt very prepared for retirement.

�� Having devised your goals you need to give some clear thought to evaluating your current financial status. Are you on track to meet your goals? How do you compare to your peers? This is when people begin to realise that they might need to do more

�� Typically, people should be saving around 12-15% of their income in retirement funds. This will vary depending on age and income. There is a wide range of web-based planning tools which can help to identify how you should be measuring your wealth and whether your current plans will support you in retirement

Benchmark yourselfStep 2

Building a financial plan: five practical steps

88% said that having enough money in retirement was an important financial goal.

�� Not all people prioritise retirement planning as an immediate action in their financial plans – for example, younger people with families or those looking to pay off debts may choose other financial targets they want to achieve first

�� Households also need to give greater consideration to their protection insurance needs – many of us already take out life insurance to protect our dependents in the event that we might die, but many are ignorant as to what the appropriate level of cover is (for example, 7-10 times their salary) and fewer of us seek to protect our incomes in the event that periods of ill-health might prevent us from working, which can have a knock-on effect on retirement savings

Establish some clear goals, both short term and long term1Step

49

Only 53% of those with a financial plan said that it contained retirement planning.

�� This plan will need to cover your own financial needs as well as covering those of any family members who rely on you. With 23% of those who didn’t currently have a plan in place saying that they didn’t know how to go about it, professional sources of advice are widely available to help people get the best sense of how to frame a plan

�� Many of us would be happy to spend up to 30 minutes thinking about how to plan our finances. This is all it takes to develop a starter plan. A quick search on the Internet can reveal enough pointers to get you started or you can make enquiries with a product provider who you already know and trust

Develop a comprehensive financial planStep 3

60% of people were put off planning because they didn’t feel they had the money.

�� Don’t be put off planning: it will potentially involve changing your financial behaviour though it is often less costly than you think. For example, consumers overestimate the cost of likely insurance premiums by up to three times compared to what they will actually be expected to pay. You will find that even making small changes (such as saving small amounts each month) can make a big difference over the long term. You may even be able to save money through more tax-efficient or less costly products

�� It is also important for couples not to fall into the procrastination trap where shared financial decision-making potential leads to inaction. Learn to delegate financial decisions within the relationship. For example, one takes the lead in terms of research and action, but decisions are made jointly on a fully informed basis and annually/bi-annually review plans and outcomes together

Implement the planStep 4

Only 7% took financial advice following a death in the family.

�� Having made a plan that meets your needs, the chances are that those needs will change with each important life event. People should see these events as important triggers to take necessary action which can influence their tax and savings position

�� Set yourself a target date each year to go through your finances (for example, at the end of the tax year). Arrange an advice session with your financial services provider. Think of it as freedom planning: nearly half of us (48%) associate retirement with freedom – use the power of planning to make that freedom a reality

Keep your plan under review Step 5

Building a financial plan: five practical steps

49

The Future of Retirement Conclusions50

The Future of Retirement The power of planning presents us with some clear and compelling findings. The need to save for retirement is broadly recognised. Furthermore, the retirement of the future is seen in a largely positive light in which people view old age as a whole new chapter in life; one which is defined by many as a time of rest and relaxation. The aspiration of most households is to enjoy a retirement which provides them with a sense of freedom, happiness and satisfaction.

Preparing for that age of freedom will present difficulties given the strong constraints on household incomes and people’s time. The positive aspirations above are matched with concerns that retirement might be an age of financial hardship with two-thirds worrying that they might not cope financially. The impact of the economic downturn has had a measured impact, particularly in the developed economies of North America and Europe where many people now expect to be worse off than their parents when they enter retirement. However, this view is by no means universal with households in many parts of the world having come through the global downturn with their aspirations for a prosperous retirement largely intact. This is particularly true in the economic powerhouses of the emerging markets such as India and China.

A common theme across all markets is one of growing personal responsibility as the state, employer and family take a back seat in funding future retirement. As a result, the individual will be expected to take centre stage in their retirement planning over the course of the twenty-first century. Even in those countries which have a strong savings habit, there is a sense that longevity is increasing more quickly than people can plan for it. This helps to explain why it is that 41% of people globally feel under-prepared for retirement.

The planning premium: the benefits of financial planning

The key message in this report is that those who take the time to put in place a financial plan are far more likely to enjoy a positive retirement. Where people are actively planning ahead, there are genuine benefits to be enjoyed. These involve hard benefits such as increased access to private pensions and savings products. As our findings show, financial planning has the power to transform our well-being in retirement. Those who are planners are likely to enjoy a major planning premium over those who do not plan for retirement. Those who both plan and take advice are doing even better in terms of amassing retirement funds, demonstrating an added advice advantage.

The planners also enjoy other benefits in that they experience a more positive outlook on retirement. People who are planning for retirement actually feel happier about their retirement prospects and have more positive associations with growing old.

Communicating these planning gains will play an important role in helping to shift household priorities away from immediate gratification and towards a sustainable long-term savings culture.

ConclusionsSupporting households in planning for retirement

51

The need to change household savings behaviour

50% of our sample currently does not have a financial plan which means that potentially millions of households globally are missing out on their planning premium. Some countries have already introduced compulsory savings schemes to change household savings behaviours. However, our findings suggest that compulsory schemes do little to address the root causes of under-saving; namely low consumer awareness and engagement in long-term financial planning. Furthermore, there is still plenty of scope for changing behaviour on a voluntary basis. As the report illustrates, the power of trusted financial brands can play a significant role in engaging consumers with their personal finances. The financial services industry clearly has a role to play in jolting the non-planners into action. The role of brand and marketing needs to be accompanied by a mix of other interventions:

� Greater funding of financial education programmes creating basic levels of financial education and awareness as a first step on the consumer journey

� Incentives through the tax system (for example, tax relief on pension contributions or life insurance policies) can help to make the choices facing consumers seem a little bit clearer

� Greater access to needs-based financial advice for those who require some degree of direction or guidance. This advice will need to be more holistic and needs-based reflecting the positive desire of consumers to build a plan which fully appreciates their particular financial situation

Consumers need to be made more aware about their long-term financial needs and educated as to what steps they need to take in order to meet those needs in a timely and cost-effective way. Once the individual is convinced of the need to act, and what type of action to take, they then need to think about specific products and product providers. And they need to be reminded on a regular basis and encouraged to keep those plans under review.

The importance of working beyond current retirement ages

It is already clear that people must be prepared to work longer whatever the retirement income mix ultimately looks like. Governments need to shake the belief that a retirement age of 60 or 62 is going to be financially sustainable for everyone. State pension schemes can help but are not sufficient on their own. Semi-retirement is seen more as a route to early retirement rather than working longer. That is not to say that it won’t be affordable for some.

Clearly those who have robust financial plans in place and the ensuing planning premium that they will enjoy, will find that they have more freedom when planning their retirement: freedom to choose where they live, whether and how they work, how much time they spend with family and loved ones. However, even for those who do plan ahead, it is unlikely that retirements lasting up to 40 years can be financially sustainable without taking a more flexible approach to mixing leisure and work in later life.

Consumers need to be made more aware about their long-term financial needs.

51

The Future of Retirement Appendix52

Appendix

53

HSBC´s 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 programme began in 2005, more than 110,000 people worldwide have been surveyed.

The research findings help HSBC to understand and meet the needs of its 95 million customers worldwide. The programme has positioned HSBC at the forefront of retirement thought leadership, and raised awareness of HSBC as a leader in the growing retirement services market.

The Future of Retirement 2009 It’s time to prepare examined findings from an online questionnaire with 15,000 people in 15 countries. It looked at the growing importance of exercising financial responsibility to prepare for an age of increasing financial independence. Key findings included:

� 75% of respondents cannot afford the retirement they want

� People’s short-term survival strategies in the midst of recession were creating a serious long-term pensions ‘downturn deficit’

� There was a continuing lack of pensions planning, even though people were aware that they were likely to live longer

� The situation was being exacerbated by poor levels of financial understanding, education and access to advice

The Future of Retirement 2008Investing in later life examined data collected from over 21,000 people in 25 countries to investigate how people prepare for what was emerging as the ‘second half of their lives’. Key findings included:

� Only 10% in each generation want their heirs to inherit their money

� Leaving knowledge and a perspective on life was seen as more important than leaving heirs money and material wealth

� Pre-retirement generations (40-60 years) had high expectations of later life but remained largely ill-prepared for it

� Enforced savings were seen as the way to fund longer retirement years

The Future of Retirement 2007The new old age was based on research amongst 21,000 people across 21 countries. It focused on the rapid rise in the number of frail and dependent elderly people. The report revealed how older people, those

in their 60s and 70s, were vitally important to families, communities and workplaces. Key findings included:

� The majority of people had positive aspirations about retirement

� They rejected age-based restrictions on work and wanted employers to adapt and provide new flexibility in the workplace

� Older people made enormous contributions as volunteers, workers, and family members

� Over 60s contribute GBP50 billion a year in UK alone in unpaid family care

The Future of Retirement 2006What the world wants examined findings from interviews with 21,329 individuals and 6,018 private sector employers in 20 countries. The report examined how families, the workplace and the role of government worked to meet people’s hopes and dreams. Key findings included:

� Enforced private saving was the preferred choice for funding retirement in nearly all countries

� There was an overwhelming sense of global realism

� People were aware of the practical limitations on what their governments and employers could do

� They were resigned to the increased role of the individual in providing for retirement

The Future of Retirement 2005In a world of rising life expectancies was the first report and laid the foundations for the Future of Retirement programme. The research found that, worldwide, attitudes to ageing and to older people varied dramatically, with many people having very positive attitudes to older people and to their own later years. Key findings included:

� Retirement was seen as a time of opportunity and reinvention

� There was a global rejection of a mandatory retirement age

� The changing role of the family and the breakdown of the traditional family structure

The first Future of Retirement report (2005) was produced in partnership with Harris Interactive and Age Wave. The 2006-2008 reports were produced in partnership with the Oxford Institute of Ageing. Harris Interactive and Age Wave were also involved in the 2006 report. The 2009-2011 reports were produced in partnership with Cicero Consulting.

All reports available on www.hsbc.com/retirement

The Future of Retirement programme

The Future of Retirement Appendix54

HSBC

Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. HSBC’s international network comprises around 7,500 offices in 87 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. HSBC provides a comprehensive range of financial services to around 95 million customers through four customer groups and global businesses: Personal Financial Services (including consumer finance); Commercial Banking; Global Banking and Markets; and Private Banking.

www.hsbc.com

Cicero ConsultingA leading consultancy firm serving the banking, insurance and asset management sector. Cicero specialises in public policy consulting as well as global thought leadership and independent market research. Cicero was established in 2001 and now operates from offices in London, Brussels, Washington and Singapore. As a market leader in pensions and retirement research, Cicero designed and analysed the research and wrote this report, with Mark Twigg as author and Chris Jackson as senior researcher.

www.cicero-group.com

References

I. US Census Bureau, Population Division, International Data Base.

II. European Commission Green Paper, COM(2010)365 final, 2010, p3

III. European Commission Green Paper, COM(2010)365 final, 2010, p4

IV. OECD figures taken from Business Week. V. Business Week. VI. Copies of previous Future of Retirement reports

can be accessed at: www.hsbc.com/retirement VII. BBC, 21 November 2008. VIII. George Osborne, the then Shadow Chancellor,

announced the proposals to increase state pension age as early as 2016, in October 2009.

IX. European Commission Green Paper, COM (2010)365 final, 2010.

X. Financial Times, 2011 XI. R. Malhotra and N. Kabeer, ‘Demographic

transition, inter-generational contracts and old age security: an emerging challenge for social policy in developing countries‘, IDS Working Paper No. 157, Institute of Development Studies, 2002.

XII. The Great Risk Shift, Jacob S Hacker, Oxford University Press, 2008

XIII. Financial Times, January 2011. XIV. The Challenge of an Aging Population, The Case

of the People’s Republic of China, Alice Goldstein and Sidney Goldstein, 1986.

XV. The Challenge of an Aging Population, The Case of the People’s Republic of China, Alice Goldstein and Sidney Goldstein, 1986.

XVI. Y. Zhigang and S. Zheng, "The age composition of population, the endowment insurance system and optimal savings ratio in China", Economic Research Journal, 2000.

XVII. World Bank Pensions Conceptual Framework, September 2008.

XVIII. The dependency ratio is an age-population ratio of those typically not in the labour force (the dependent part) and those typically in the labour force (the productive part). It is used to measure the pressure on productive population, with the productive population being defined as those aged between 15 and 65.

XIX. The Future of Retirement: It’s time to prepare, 2009.

XX. A New Pension Settlement for the Twenty-First Century; The Second Report of the Pensions Commission, November 2005.

XXI. The second Report of the Pensions Commission, November 2005.

XXII. Financial Times, March 2011. XXIII. Consumer Financial Education Body, 2011. XXIV. Peter Smith, Journal of Knowledge Management

Practice, March 2002.

© HSBC Insurance Holdings Limited 2011All Rights Reserved.

Excerpts from this report may be used or quoted,provided they are accompanied by the followingattribution: ‘Reproduced with permission fromThe Future of Retirement The power of planning, published in 2011 by HSBC Insurance Holdings Limited, London.’

Published by HSBC Insurance Holdings Limited, London

Designed and produced by Global Publishing Services

www.hsbc.com/retirement

HSBC Insurance Holdings Limited8 Canada SquareLondon E14 5HQ

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