Future of Retirement 2009 HSBC

The Future of Retirement
It’s time to prepare

Photography
Planning, preparation and ascent
The hot air balloon photography in this report has
been selected to represent the retirement journey:
from the early stages of planning and preparation,
through to the subsequent controlled ascent.
Contents
Contents 3
Chairman’s Foreword 4 Part Three
Introduction from Business and Author 5 The future of retirement:
The conditions for realising
Executive Summary 6 successful retirement planning 26
Life, challenges, action
The savings and consumption life cycle 28
The solutions are wide ranging 6
Alternative routes to funding retirement:
Rising to the challenge of funding later life 7 the changing savings life cycle 29
The perfect economic storm 7 Case study:

Home equity release in the US and UK 29
The importance of ‘long-term’ survival strategies 9
The ‘Preparedness Gap’ 30
Part One
The population mega-trend: Financial education in focus 32
It’s time to prepare 10
Keeping it in the family 34
The population ‘mega-trend’ and the
transition from young to old 11 The role of the financialservices industry 34
The impact of the population mega-trend: Part Four

Demographic dividend or perfect storm? 13 Supporting a savings habit:
The impact of the economic downturn
Old before they’re rich: Can populous on family economics 38
countries make the most of this dividend?
Case studies: China and India 14 Families’ views on how long the
downturn will last 39
Are emerging economies saving
enough for retirement? 15 The economic downturn:
Impact on short-term finances 42
Part Two
Meeting the demographic challenge: The economic downturn:
The path to pensions reform 18 Impact on long-term finances 46
Pensions reform: Asset allocation 50

Redefining the rules of the game 19
Conclusions 52
Pension reform:
How do the world’s families Appendix One
want to prepare for their retirement? 20 Survey methodology 56
Appendix Two
The changing population profiles
across the world
Retirement Planning where you are 62
The Future of Retirement It’s time to prepare Contents

Chairman’s Foreword
Welcome to our fifth Future of Retirement report. Developed economies are already witnessing
the transition of the baby-boomer generation into
This report is inspired by the rapid improvements retirement. The presence of well developed pensions
in longevity witnessed in the last half century. With systems will, in some cases, be offset by a trend
these trends set to continue, the way in which towards falling savings rates placing question
we fund retirement will become one of the most marks over the adequacy of incomes people can
profound challenges facing the world. The presence expect when they reach retirement. In emerging
of a demographic mega-trend will affect every aspect economies, the transition toward an ageing society
of our economic and social life. This will include will take a number of decades. Before that transition
changing working patterns, family life, as well as is complete, these countries will enjoy a demographic
the need to reassess funding healthcare and what dividend as their large youth populations move
will, in all likelihood, be an extended retirement. into the working age population. This will facilitate
a major shift in resources from youth to elderly
HSBC, as one of the world’s leading banks enjoys dependency. While many of these countries currently
a major presence across mature and emerging enjoy high savings rates, the need to continue to
markets. An important part of our strategy has been develop long-term savings markets will be a major
to anticipate the impact of such changes, and to prerequisite if families are to channel those savings
understand what they will mean for families across towards funding retirement in sufficient amounts.
the world. Looking across both mature and emerging
economies we can see that many countries have The recognition families give to their growing financial
already taken the first steps on the path towards reform. responsibilities has been one of the major positives
from our Future of Retirement series. This is particularly
While all countries will find that there are important the case with younger individuals who have been less
local differences in how they tackle the challenges exposed to the traditional welfare state. However,
of an ageing society, we do find the emergence of recognising the changing relationship between
a common global narrative which binds all countries government, employers and individuals is merely the
whether developed or emerging: now is the time starting point. It remains vital that people take the
to prepare. In reflecting this truth, reforms to date necessary action to prepare for that retirement.
have placed a greater recognition on the need for
personal responsibility as governments and employers As we make clear in this report, the shift from
look to share more evenly the burdens of funding institutional to individual retirement provision will
retirement. However, in spite of such commonalities produce a heterogeneous response with a wide
we must not overlook the presence of important ranging set of household needs and desires. The
local and regional differences as countries approach Future of Retirement report continues to provide vital
this reform from very different starting points. insights into the different approaches and responses
which are likely to develop in the coming century.
Stephen Green
Group Chairman
HSBC Holdings plc
The Future of Retirement It’s time to prepare Chairman’s Foreword

Introduction from Business and Author
I am delighted to share with you our This year’s Future of Retirement report –
latest Future of Retirement report. It’s time to prepare – explores four themes.
Given the fundamental changes occurring in life Firstly, the demographic trends which dictate why
expectancy, HSBC’s Future of Retirement series the future of retirement is set to change. This will
has, throughout the previous five years, provided demonstrate that while all countries can expect to see
major insights into current attitudes and behaviour rapid changes in the coming years, the impact will
towards ageing and retirement. This has involved perhaps be felt most keenly by countries in East Asia
looking at people’s expectations as to what sort of which is ageing more rapidly than other major markets.
retirement they envisage and who should exercise
responsibility for funding that retirement. Our previous Secondly, the options for reform will guide how
reports have revealed that many families already retirement is refined. Responsibilities for funding
expect to be more self reliant, and take on more retirement are shifting. Where the balance is struck
responsibility for funding their own retirement. between governments, employers and individuals will
be critical in ensuring popular support for any reforms.
To understand these trends, this year’s report
is marked by an uncertain economic outlook in Thirdly, the report looks at the conditions for success
which the prospects for a prolonged downturn will that will be necessary if families are to adequately
place greater pressures on families to meet their meet their new responsibilities. These include the
growing financial responsibilities. We can already need to widen access to financial education and
see what impact this is having on household advice alongside the need to develop new savings
spending and the use of debt. However, there is and insurance-based solutions to help families
an equally significant impact on pension savings deal with the financial risks of growing old.
as well as the value of pension assets. This year’s
report considers the impact of these changes. Finally, how families’ budgets are coping with
the current downturn and what impact that will
It highlights the heightened need for individuals to do have on their ability to plan for retirement.
more as opposed to less, and the needs for employers,
governments and financial institutions such as Mark Twigg
ourselves to continue to educate, inform and empower Director
individuals towards a happy and healthy retirement. Cicero Consulting
The Future of Retirement research plays an important

role in helping HSBC to understand how best to
develop tailored product and advice solutions to
help our 128 million customers across 83 countries
and territories to meet these challenges.
Working with Cicero Consulting, we have produced

a report that we hope will help to provide further
insights to policymakers and families in attempting
to re-define how we all prepare for a positive and
enjoyable retirement – “It’s time to prepare”.
Clive Bannister
Group Managing Director
HSBC Insurance
The Future of Retirement It’s time to prepare Introduction

Executive Summary
Life, challenges, action
The Future of Retirement series Greater affluence and improvement Linked into all these changes we
has become firmly established as a in healthcare will help to overcome see how changing demographics
leading global study in individuals’ the ‘diseases of poverty’ resulting in are already having a profound
attitudes to ageing and retirement further increases in life expectancy. impact on society. This will intensify
planning. Now in its fifth year, the However, as people become during the next 40 years with the
report provides a truly unique insight wealthier, there is the emergence world’s population of over 65s
in presenting findings across a of ‘diseases of affluence’ which set to increase from 550 million
sample of developed and emerging will place question marks over the today to over 1.4 billion by 2050.
markets. To help better understand prospects for continued good health
individuals and their families’ in later life. The need to better The solutions are wide
current attitudes and behaviour, manage healthcare – alongside ranging; there are important
a major piece of research was the need for further medical local differences in how
commissioned looking at families advances – will play a major role societies respond
across the world in 15 countries. in maintaining quality of life and As society ages individuals will be
well-being in our later years. faced with greater financial risks.
What is more, the complexity of
Industrialised Economies Changing working patterns these risks – to health, working
Canada are resulting in people moving life, family life and incomes – will
France employers more frequently. This become ever greater. Each life event
Japan brings with it less job security, presents new financial challenges.
United Kingdom alongside fundamental changes As the state and employers begin
United States to employee benefits. The to draw back on their pension
current economic downturn has commitments, it will be for
Emerging Economies already accelerated the trend the individual to take action in
Brazil of employers who are reducing addressing these challenges.
China the value of their contributions
Hong Kong into workplace pensions. Simply working longer is
India seen by both individuals and
Korea Family life is also changing rapidly. governments as one solution.
Mexico The increase in family breakdown The global survey revealed that
Saudi Arabia and the onset of higher female when presented with a range of
Singapore employment rates have seen options for funding retirement,
Turkey women in particular exposed to
23%
United Arab Emirates greater financial risks. These risks
are in addition to women’s traditional
role in family life where we see a
Predicting the future is always clear gender divide in those who
fraught with difficulty. This applies to exercise financial responsibility for
our efforts to understand the future different decisions made within the
of retirement. However, we can see household. Men are more likely to be
a number of long-established trends looking after the long-term finances of people support efforts to
which will produce further rapid while women remain more focused encourage people to work longer into
increases in life expectancy. Fewer on household budgeting. It is those old age. However, Governments can
young people will mean fewer decisions which are more likely to be also play a key role in encouraging
people to fund state pensions and taken by women which have felt the individuals to save more.
rising healthcare costs. Immigration brunt of the economic downturn.
may help some countries to offset
the impact of ageing but globally this
could prove a zero-sum game as the
benefits in recipient countries may
be outweighed by the costs
to donor countries.
The Future of Retirement It’s time to prepare Executive Summary

The world’s population of over 65s set to increase from 550 million
today to over 1.4 billion by 2050.
The strategies employed by biggest challenges we face is the survival strategies to deal with the
governments around the world widespread lack of awareness of downturn. At a time when people
will need to reflect important the increasing risks people face need to take action, economic events
local differences. The findings which translates into a lack of are having a negative impact as the
show a major regional split in action. Only 27% claim to fully value of household financial wealth
which Asian countries seemingly understand their long-term finances. falls and households’ priorities shift
prefer strategies based more on Here there is a gap between men from savings to paying down debt.
working longer into retirement. This and women with the latter having
compares with Europe and North lower levels of understanding. From Less than 20% of people in
America where people are more this low level of understanding our survey have so far left their
prepared to save more but with the we find there to be a major retirement plans unchanged,
incentive of government tax relief. preparedness gap as families fail to whereas 1-in-6 people have reduced
meet these challenges head on. pension contributions, and nearly
In developing markets we see 1-in-10 people now expect to delay
43%
another important distinction with the onset of their retirement as
greater priority placed on parents a result of the global downturn.
saving for their children as they This strategy of deferring the
seek to help the next generation onset of retirement is particularly
up the social ladder. Put simply, notable in countries such as the
societies with young age profiles US and Singapore where Defined
must first deal with issues of youth Contributions pension arrangements
dependency – such as ensuring of people in our survey have are already well established and
access to well-funded education undertaken some planning but admit people are more likely to be aware
systems – before they turn their that they do not know what their of the impact of falling fund values.
attention to dealing with elderly retirement income will look like.
dependency. Over time, as the large However, we see positive changes
generations of children enter working too in terms of bringing into sharper
age, these societies are increasingly Only 13% feel very prepared for focus the need to save versus just
likely to turn their attention their retirement. The preparedness spend, and the need to become
toward saving for retirement. gap is greatest among women and more financially aware or educated.
younger savers (30–40 year olds). Another positive outcome has been
Rising to the challenge of funding to force governments and others
later life: The emergence of The perfect economic storm to act with greater urgency on a
a major preparedness gap These challenges have been potentially deepening crisis. The
Not surprisingly, notions of exacerbated by the economic cost of procrastination is high for
retirement are already changing. downturn creating a ‘perfect storm’. all. This recent economic downturn
The old ‘cliff-edge’ of retirement This combines a retreat in employer has increased the need to do more
– in which people stopped working and government pensions; falling as opposed to less. This is tough
overnight – is being replaced by pension fund values as a result in an environment where paying
more of a transition into retirement. of falling equity values leading to down debt and job insecurity often
Previous reports in this series have shortfalls in people’s retirement take precedence over longer term
highlighted the common perception plans, as well as more people needs. However we are seeing
of ‘70 as the new 50’ with more choosing to reduce or putting off some pragmatic solutions.
people remaining active for longer making pension contributions.
– whether it be remaining in work While as many as 40% believe that
or undertaking voluntary work. the current economic storm will
last between 1–2 years, a further
Faced with this rapidly changing one-third of people (32%) expect
world, individuals, governments the downturn to last longer than two
and employers are struggling with years. As a result almost all families
how best to cope. One of the – 92% – have already adopted

Have you ever sought
financial guidance?
The importance of ‘long- It is one thing for an individual to Individuals also need to protect
term’ survival strategies take more responsibility for their own themselves for today as well as
Diversifying one’s wealth works future, however the responsibility tomorrow. Families are responding
well for many and previous Future of governments, employers and positively to this need and it is clear
of Retirement reports have shown financial institutions to educate and that insurance-based products are
how real estate can play a key inform remains. Currently, there are likely to be the most popular option
role alongside equity investments. major shortfalls in access to financial during the coming 12 months.
This could be considered as advice and education. While some However, families seem to be more
part of a diversified approach of the developing countries – such focused on insuring their property
to long-term investment. as India and China – did surprisingly and the ‘short-term’ safety net – with
well in accessing sources of financial needs such as pet insurance in some
This year’s HSBC Future of education, it is clear that many counties taking greater priority over
Retirement research again looks at of these people rely heavily on the long-term safety net such as
asset allocation, with the current the Internet and family members, insuring one’s health and incomes.
economic uncertainty prompting which may not provide the most
an almost universal shift globally accurate source of guidance. Faced with long-term trends and
away from equities into less risky short-term financial pressures the
asset classes. While this particular This reveals an unmet need for message to all individuals is simple
trend may prove to be temporary, consumers to access trusted ‘go and clear: we find ourselves living
we must all learn the investment to’ advisors, providing a major in an age of increasing self-reliance.
basics – how best to take a opportunity for the providers While this may involve dealing with
balanced, long-term approach. of savings products. Financial increasingly complex financial issues,
institutions and government will individuals can ill afford to be put off.
This involves saving more, moving need to deliver creative solutions The cost of procrastination is indeed
away from the pre-economic in the form of savings products for very high. Now is the time to act.
downturn boom of conspicuous both pre-retirement accumulation
consumption to a more measured and post-retirement disbursement.
approach to spending less and saving It is also paramount that individuals
more. The research shows that receive greater access to financial
there has been a marked decrease advice to help them plan for
in the appetite of individuals to these different life stages.
acquire consumer credit. Across
all countries we find that people
are looking to pay down debt.

Part One
The population mega-trend:
It’s time to prepare
In the opening section of this report we go back to basics in examining how

the continued macro-trends affecting population growth in different countries
are set to develop and converge over the next 40 years.
Key Facts
The world’s population is set to increase from 2 billion to over 9 billion

in less than a century1
The world’s population of over 65s will increase from 550 million to
over 1.4 billion by 20502
Japan – the demographic bullet train or ‘Shinkansen’ – is undergoing

one of the most rapid ageing processes. By 2050 nearly 40% of its
population will be 65 or over3
Family planning policies are having a major impact on speeding up the

ageing process in countries such as China and Korea
In 2007 the number of people in the UK over the age of 65 exceeded the
number of people below 16 for the first time. The world is on course to
match this trend by around 20804
Much of that population growth will come in parts of the world where
access to pensions is currently limited. India has a total of 284 million
people of working age with no access to a formal pension5
China’s pension fund assets are set to grow by 30% per annum by
2015 – the same year in which that country will see the number of new
retirees outstrip the number of new workers6
1. World Population prospects, UN Population Division, March 2009 4. Social Trends 39, UK Office of National Statistics, 2009
2. World Population prospects, UN Population Division, March 2009 5. Building a pensions powerhouse, Global Pensions, 15 October 2008
3. OECD Observer, March 2007 6. China faces up to spectre of 1-2-4, Global Pensions, 19 February 2005
10 The Future of Retirement It’s time to prepare Part One

In effect, what we are seeing is a population mega-trend; a global
“baby-boomer” generation spanning more than a hundred years.
The population ‘mega-trend’ and The industrialised world already

resulted in the theory of a population
the transition from young to old illustrates what a baby-boomer
cycle, a definite pattern of population
Having taken 10,000 generations generation will mean for retirement
progression that has been standard
to reach the 2 billion mark by the systems. With a huge population
for industrial nations. In time, as
middle of the last century, we can bulge of post-war births set to
affluence becomes more evenly
expect to see the world’s population move into retirement during the
spread, the world’s birth rate will
surpass the 9 billion mark by 20507 next decade, many industrialised
decline. As life expectancy continues
with a far higher proportion of those countries have begun to undertake
to improve, more people can expect
people living into retirement. root and branch pension reforms.
to spend longer in retirement. The
trend towards growing retirement
Chart 1 – The gap between young and old will disappear by the endpopulations
In effect, this represents a Demographers have sought to link of already seen in the
population mega-trend; a global this population growth to wider West will also come to affect the
the century“baby-boomer”
(Number of underspanning
generation 14s and trends
Overin65s as a % ofandworld population
industrialisation emerging economies in Asia, Latin
more than a hundred years. economic development. This has America and the Middle East.
Fig. 1 The number of under 14s and over 65s as a % of world population8
70
60
50
Percentage
40
30
20
10
0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Under 14s
Over 65s
Source: World Population Prospects: The 2008 Revision, United Nations Population Division, 2008
7. An Inconvenient Truth, Al Gore, 2006.

8. World Population Prospects: The 2008 Revision, United Nations Population Division, 2008.
The Future of Retirement It’s time to prepare Part One 11

The legacy of high birth rates As mentioned above, the developed In India, where the population
helped to produce a massive economies among the surveyed bulge occurred later still and has
youth population. By the 1960s countries, such as the US, the UK, yet to peak, they will not see a
the number of people aged under Canada and France, will all see their major transition towards retirement
14 peaked at around two-thirds baby-boomers entering retirement until 2070-80. As the emerging
of the world’s population [Fig. 1]. during the next 15 years or so. economies in the South and East
Today, it is already down to a little In China, the baby-boomers will converge with the developed
over 40%. The current skew in be retiring around the middle of economies in the West, over 65s will
population towards youth will, in this century. increasingly be found living in Latin
time, disappear as the number America or Asia. Fig. 3 shows how
of children falls and the number Japan – the high-speed bullet train
of retirees increases. In fact, the or ‘Shinkansen’ of the great ageing
world’s retirees are set to become debate – will be joined by Korea and
more populous than China by 2050. China in ageing more rapidly than
countries in the West.
ation of over 65s compared with the population of under 14s
Fig. 2 The global population of over 65s

compared with under 14s 9
2.0
1.8
1.6
1.4
1.2
1.0
Billion
0.8
0.6
0.4
0.2
0.0
1950 2010 2050
World population over 65
World population under 14
12 The Future of Retirement It’s time to prepare Part One

Before the end of this century there will be more people on the planet
over the age of 65 than those below the age of 14.
The impact of the population The demographic dividend Secondly, growing affluence
mega-trend: Demographic The transition to low birth and generated by all these additional
dividend or perfect storm? mortality rates will produce some workers will produce the economic
Opinions are divided on whether positive outcomes, or what could conditions for supporting greater
this increasing retirement population be called a ‘demographic dividend’. levels of savings within families.
is a threat or an opportunity. The This affords emerging economies a This demographic window of
growing ageing population is real opportunity to seize the chance opportunity will not last forever. In
often described as a demographic to make the necessary preparations time, the large working population
“time bomb” just waiting to go off, for funding the future retirement age moves into the older, less-productive
wreaking havoc with current pension population. Firstly, there will be a age groups and is followed by the
systems. However there is no reason huge working age population. As the smaller youth cohorts as a result of
why later life cannot become a major mass of dependent children move declining fertility rates. When this
opportunity; a new life phase where into adulthood and working age, occurs, the dependency ratio rises
people have more time with their there will be a corresponding drop again, this time involving the need to
families, develop new interests and off in the youth dependency ratio. care for the elderly, rather than the
new skills, even continue working Fewer investments will be needed need to take care of the young. This
or start a whole new career. The to meet the needs of the youngest transition can be seen in countries
Chart 3opportunities
– The growing percentage
are endless, provided of
agepeople
groups and living beyond
resources are the like China and Korea and it may
age of the
65necessary
in selected countriesbetween
preparations are released 2000 and 2050
for investment in economic be further hastened as a result of
made. Now is the time to act. development and family welfare. policies on birth control.
Fig. 3 The growing percentage of people living beyond the age

of 65 in selected countries between 2000 and 205010
45
40
35
30
Percentage
25
20
15
10
0
France Japan Korea Mexico Turkey UK US Brazil China India
2000 2010 2020 2030 2040 2050

OldChart
before they’re
4 – Population spreadrich:
– China today (2000); China tomorrow (2050)
Can populous countries make the
most of the demographic dividend?
Case study: China Fig. 4 China today (yr 2000); tomorrow (yr 2050)
In China, where the average person
is now 33 years old, new retirees
Male Female
will start to outnumber new workers
100+
as soon as 2015. It is a race against 95–99
time to lay the foundations of a new 90–94
pensions system and build pensions 85–89
assets quickly. China has already 80–84
75–79
made huge strides towards creating
70–74
a balanced ‘contributory’ pension 65–69
system. However, unique challenges 60–64
remain. Ever since the 1970s the 55–59
‘one child’ policy has combined 50–54
45–49
with rapid improvements in life 40–44
expectancy to bring about rapid 35–39
changes Chart 5 – Population
in the elderly dependency spread – India today (2000); India tomorrow (2050) 30–34
ratio (the number of people in 25–29
20–24
retirement as a proportion of people
15–19
of working age). Between 1970 and 10–14
2040 this ratio is expected to fall 5–9
from 8:1 to just 2:1. Notwithstanding 0–4
the pressures on funding retirement 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70
income, this gives rise to particular Population (in millions)
problems in funding elder care.
2050 2000
Source: U.S. Census Bureau, International database
Case study: India Fig. 5 India today (yr 2000); tomorrow (yr 2050)
In India, where the average person
is just 26 years old, the window Male Female
of opportunity will remain open
100+
for longer, but they have further 95–99
to go in developing pensions 90–94
arrangements. Formal pension 85–89
arrangements cover only 13% of 80–84
75–79
the country’s paid employees in 70–74
India, with a total of 284 million 65–69
people without pension coverage.11 60–64
55–59
50–54
45–49
40–44
35–39
30–34
25–29
20–24
15–19
10–14
5–9
0–4
70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70
Population (in millions)
2050 2000
Source: U.S. Census Bureau, International database
11. Building a pensions powerhouse, Global Pensions, 15 October 2008

Source Figs. 4 & 5: U.S. Census Bureau, International database.
14 The Future of Retirement It’s time to prepare Chapter

Part One
Are emerging economies saving and often in savings vehicles which into sufficient retirement assets
enough for retirement? might not offer the best long-term given the differing savings motives
On the face of it, many emerging returns. Pension assets are generally people may have. The table below
economies are indeed cashing in on quite small – pension fund assets, shows how it is only the traditional
the demographic dividend. There for example, make up just 5% of Asian Tiger economies which scored
are a number of countries which India’s GDP. In China, the figure above the global average in terms
currently have very high savings is just 1%.12 This compares with a of ‘approaching retirement’ as being
ratios, in excess of 20% of GDP. global OECD average of 90%. This a motive to save. In most emerging
These high savings rates potentially year’s HSBC Future of Retirement economies the desire to save for
mask some significant risks because findings illustrate that having high one’s children outweighs the need
they are distributed very unevenly savings rates might not translate to save for one’s own retirement.
Chart 6 – Motives for saving: funding retirement / saving for children
Fig. 6 Motives for saving
Funding retirement and saving for children
56%
Japan 26%
45%
South Korea 31%
28%
Hong Kong 34%
26%
Singapore 30%
23%
Global 25%
22%
Turkey 31%
22%
Brazil 29%
20%
Canada 11%
18%
United States 10%
18%
France 15%
17%
UK 8%
14%
China 41%
13%
UAE 33%
12%
Saudi Arabia 32%
12%
India 35%
6%
Mexico 26%
Saving for retirement
Saving for children
12. OECD Private Pensions Outlook 2008

Who do you view as the best
source of financial advice?

The Future of Retirement It’s time to prepare Chapter 17
Part Two
Meeting the demographic challenge:
The path to pensions reform
The kind of rapid changes outlined above, coming in little more than one lifetime,
will inevitably place greater financial pressures on all countries to reform existing
pension and healthcare systems. All of us – governments, employers and families –
need to re-think, and redefine, how we currently view and plan for retirement and
later life. We will set out below what this means for the 15 countries covered in
the HSBC Future of Retirement survey as well as setting out prospects for reform.
Crucially, the findings reveal what kinds of reforms families themselves would like
to see implemented.
Key Facts
31% of the global survey support efforts to encourage voluntary

savings through tax relief
Support is particularly high in the UK, Canada and the US – as well as a

number of emerging economies such as Turkey, Brazil and Mexico
Reforms in Brazil have already produced phenomenal increases

in pension fund assets since they were brought during mid 1990s
– funds have risen from US$ 1bn in 1994 to US$ 20bn by 2005
Support for working longer was clearly more of an Asian

preference with notable support in Korea and Singapore
At 13%, support for social security models funded through

taxation proved less popular. It seems that support for social
models is in terminal decline as the young look increasingly
towards private savings
In 2008 the UK’s voluntary savings ratio hit a 50 year low

– at just 1%. This trend has prompted the shift to a new
compulsory personal accounts model by 2012
Support for compulsory savings – often viewed as a form

of taxation – also proved to be less popular13
13. Policy Issues in Insurance, OECD 2004
18 The Future of Retirement It’s time to prepare Part Two

31% of the global survey support efforts to encourage voluntary
savings through tax relief.
Pensions reform: Redefining 695,000 during this decade. In the included increases in the retirement
the rules of the game same period, the number of people age from 62 to 65). In reality, all
The demographic mega-trend in the scheme below the age of 24 countries will seek a mixture of the
highlighted in the introduction has has halved.14 two, as happened in the UK which
already created the pressing need has legislated to introduce the new
to reform the way society funds All countries are faced with similar personal accounts system from
retirement. Even in those countries challenges and choices when 2012 alongside plans to raise the
which currently have well-funded rebalancing their pension systems. retirement age from 65 to 68.
pension systems, the pressure for They can either seek to increase These reforms aim to strike a
change is building. For example, in contributions (which the French balance between putting more in
Singapore, the Central Provident sought to do by creating a suite of now while taking less out later.
Fund (CPF) has seen the number new retirement savings products)
of members aged over 55 increase or they can decrease entitlements
from 105,000 in the 1980s to (for example, Singapore’s response
Fig. 7 Options for pension reform
Increase Reduce
Contributions Elegibility
Work longer/
Save more
phased retirement
Reduce the value of

Tax more
pension benefits
The Future of Retirement The Future of Retirement

findings show that families findings show that families
in Europe and North America in Asian societies prefer to
prefer to save more (i.e. work longer (i.e. reduce their
increase their contributions). entitlements).
There is relatively little support

to increase contributions
through tax-funded means.
14. Keeping pace with age, Global Pensions, 9 June 2008
The Future of Retirement It’s time to prepare Part Two 19

All countries will be forced to Appendix Two illustrates how all the Pension reform: How do the
redefine current concepts of 15 surveyed countries have already world’s families want to prepare
retirement as they seek to strike this started to put in place the different for their retirement?
balance. Perhaps the biggest shift pillars of pension provision. To date, The findings illustrate that families
is the changing role of the state and there seems to be a remarkable are largely supportive of the kind of
employers who increasingly become degree of convergence towards steps being taken above. In total,
‘facilitators’ helping individuals to reforming pensions. While some 31% of the global survey support
save for their retirement. The World countries have decided against efforts to encourage voluntary
Bank has set out a new, more the need to develop three pillar savings through tax relief (pillar 3).
balanced, funding model based on pension arrangements, favouring This compared favourably when
three pillars of pension provision. instead mandated approaches set against the other options for
These pillars effectively share the – as is the case in Hong Kong, reform including the options of
responsibilities more evenly. They Singapore and Mexico – all countries taxing people more in order to
include a role for social security foresee greater reliance on families fund more generous social security
(pillar 1) though for many this will and individuals, leading to the systems (supported by 13%) or of
provide low replacement income emergence of a variety of personal encouraging people to work longer
rates upon entering retirement. This pension choices. into old age (supported by 23%).
is where the second pillar (including
traditional occupational schemes
Chart
such 7 – What
as defined benefit,the government do in supporting and
so-called financing an ageing population
final salary schemes) and the third
pillar (including defined contribution
personal pension ‘accounts’) help to
build greater pensions coverage and
adequacy of benefits.
Fig. 8 What the government should do to support

and finance an ageing population
17% Mandate Compulsory employee pension contributions
13% Raise taxes to pay for better state pensions/social security
23% Increase retirement age and support people to work longer
16% Encourage more private savings through

automatically opting people into workplace schemes
31% Encourage more private savings through tax relief on savings

However, there are important are favoured by people in Singapore the voluntarist approach against
regional differences in the reforms and Korea, and are more popular in older workers and those already
families would like to see. The Japan and Hong Kong. This signals in retirement who show a keener
voluntary approach supported an important cultural split in attitudes support for the continued role of
through the tax system is particularly to reform between the West and social security systems. This is
popular with families in the UK, the East. supported by the experience of
the US, Canada, Mexico and French reforms in 2004 in which
Brazil. Figure 9 below shows that The findings also revealed a the introduction of tax incentivised
increasing retirement ages and generational split between personal pension products has been
supporting people to keep working younger workers who supported embraced more by the young.
Chart 8 – Regional differences on how the government

should respond to an ageing population
Fig. 9 Regional differences on how the government should respond

to an ageing population: working longer versus saving more with tax relief
23%
Global 31%
16%
UK 36%
13%
France 32%
13%
Turkey 44%
12%
United States 55%
16%
Canada 48%
9%
Brazil 40%
24%
Mexico 43%
29%
UAE 23%
18%
Saudi Arabia 23%
15%
China 12%
25%
Hong Kong 14%
45%
Singapore 24%
52%
South Korea 17%
23%
India 21%
28%
Japan 29%
Increase retirement age and support people to work longer
Encourage more private savings through tax relief on savings
The Future of Retirement It’s time to prepare Part Two 21

Any model which explains the future shape of retirement planning
must place the individual and their family clearly at its centre.
The findings reveal that individuals provision will continue to decline With retirement being redefined
accept the need for greater personal as a share of families’ retirement around the need to save more and
responsibility. A model of what the incomes. More and more of possibly work longer, there are in
future of retirement might look like that income will come from the essence four factors which will
by 2020 is demonstrated in Fig. 11. individuals themselves, facilitated need to be addressed in all societies
Any model which explains the future by governments, employers and in order to make the future of
shape of retirement planning must the financial services industry retirement an age of opportunity
place the individual and their family providing access to the necessary rather than one of financial hardship.
clearly at its centre. Entitlements toolkit of long-term savings Inhibiting any of these linkages
will continue to come from social products and financial advice. to the family inhibits the family’s
security systems and employers, ability to make the necessary
but these forms of pension preparations for future retirement.
Chart 9 – Different age groups views on their government's response to an ageing population
Fig. 10 Different age groups’ views on their government’s
response to an ageing population
40
35
30
25
Percentage
20
15
10
0
30-39 40-49 50-59 60-70
Raise taxes to pay for better state pensions/social security
Increase retirement age and support people to work longer
Encourage more private savings through tax relief on savings
Encourage more private savings through automatically opting people into workplace schemes
Mandate compulsory employee pension contributions

Fig. 11 The Future of Retirement
Employer
W
e or
ic kp
dv l
a
ac
ce
e
a
Access to
DC
pl
Shift from
well-paid
rk
DB-DC
ar
wo
employment
ra
ng
ort
Reduced Increased
em
pp
entitlements working age
e
Su
nts
Reduced Access to pre/at
entitlements retirement
advice
Taxes
Greater enabler Access savings

Government and insuranace Bank/Insurer
role through
tax relief Family DC-based
pensions
ls
too
Inc
ing
rea roug
nn
sin
th
pla
g a sc
l
cia
cc ho
h
an
es ol
f in
st sa
o
al
a
fin
rm
nd nc
co ial e
fo
n
l le d u fi
ge ca nto
s tio e
n pm
velo
De
School/College
Access to Can families afford to support the savings habit?

economic means
Access to Do families understand the responsibilities they face?

financial education
Access to Can families go to trusted sources to help them act on those

responsibilities?
financial advice
Access to Can families choose from appropriate savings and insurance

products to meet their needs?
retirement products
The
TheFuture
Futureof RetirementIt’s
ofRetirement It’stime
timetotoprepare
prepare Part Two 23
Chapter
What are you doing to survive
the economic downturn?

Part Three
The future of retirement:
The conditions for realising
successful retirement planning
In this part of the report we will examine what factors might prevent the planned
future retirement becoming a reality. In order to exercise greater responsibility,
families will need access to the economic means and to greater levels of financial
education, advice and retirement products. This will help ensure that the future
of retirement is an age of opportunity rather than an age of financial hardship.
Key Facts
43% of people have never received any form of financial education

– this means that for two-fifths of the global sample one of the
fundamental building blocks for creating consumer awareness and
understanding is missing
47% of families have never accessed any form of professional financial

advice, revealing the emergence of the global ‘advice gap’
The combined effect of missing out on education and advice

contributes to a major lack of preparedness among the global sample.
The global preparedness index revealed that 43% of families feel under
prepared for their retirement
87% of the global sample does not know what kind of income they can
look forward to in their retirement
Only 9% thought they would need to buy an annuity at some point in

their life – notwithstanding the global shift towards ‘personal’ pensions
There is a clear mismatch between consumer demands and consumer

needs – families continue to focus on products such as pet insurance
while overlooking their needs to protect their income. Surprisingly,
this mentality prevails even during an economic downturn, when
family incomes are under threat from potential unemployment
26 The Future of Retirement It’s time to prepare Part Three

The twin themes of preparation and self-reliance will therefore
increasingly come to define how we think about the retirement
of the future. The question is whether people are able to recognise
those needs and act upon them.
The new responsibilities facing The twin themes of preparation As the process of retirement is
families can be illustrated through a and self-reliance will therefore set to change rapidly, so too, will
simple ‘life cycle’ approach. In early increasingly come to define the the advice needs of people at
adult life, individuals are to some retirement of the future. The retirement. For example, the trend
extent likely to be borrowing or question is whether people are able from defined benefit to defined
relying on family in order to support to recognise those needs and act contribution pensions – which is
their lifestyles. In middle adult life, upon them. Families are faced with increasingly the global norm – places
career and income progression a wide range of important questions greater emphasis on access to
enables people to support their across this life cycle including: advice in the ‘decumulation’ period
own families and hopefully the – that phase when investors are
savings habit, and finally in later life, At what age to start saving? turning their lifetime savings into
individuals need to call on those retirement income. The findings
savings to support their income into How much to save? show that such large numbers of
retirement. This life cycle can be When to increase or people lacking access to financial
seen in Fig. 12. decrease savings levels? advice (47%) and financial education
(43%) translates into a failure to
This savings and consumption curve Which savings product to identify appropriate solutions to
will differ in each country though save into? financial needs. There are many
generally it is clear that during products along the savings life cycle
working lives, incomes not only How to invest? How much which are not recognised as being a
support pre-retirement consumption risk to assume? genuine household need.
but also support long-term savings.
At retirement, the need to save is Whether to accumulate The fact that so many people will
replaced with the need to convert assets in other ways, such come to save in personal pensions,
savings into income in order to as purchasing property? yet do not see the need to consider
preserve consumption levels into purchasing annuities may reflect a
retirement. New and varied financial How to secure an income number of factors. Overwhelmingly,
product and advice needs emerge at retirement? Annuities families just do not make the
across that life cycle for families to or lump sums? distinction between the need to save
remain self-reliant in the retirement in a pension and the need to secure
of the future. How best to protect those an income in retirement. While
savings, and any other assets, annuities are not currently common
through the appropriate to all markets, the need to generate
insurance? a secure income in retirement in
an increasingly money purchase
environment will require a shift in
legislation in many countries as well
as a shift in consumer behaviour in
all countries.
The Future of Retirement It’s time to prepare Part Three 27

Fig. 12 The savings and consumption life cycle15
Asset peak
Wealth management?
Tax planning?
Estate planning?
Onset of family lives Phased retirement
Child savings? Low risk investments?
College funds? Income funds?
Life insurance? Equity release?
Onset of married lives/cohabiting Fully retired

Mortgage? Annuities?
Life insurance? Tax free lump sums?
Health insurance? Income drawdown?
Mortgage Payment Insurance? Long term care?
Savings Consumption
Onset of working lives

Short term savings?
Investments?
Income protection? Pre-retirement Post-retirement
Banking? consumption consumption
Short term debt?
Retirement age
Working life Life expectancy at retirement
15. James F. Moore & Olivia S. Mitchell, 1997. “Projected Retirement Wealth and Savings Adequacy in the
Health and Retirement Study, NBER Working Papers 6240, National Bureau of Economic Research, Inc.

Part Three
Many people are simply unsure about their options with as many as
one-in-five people currently prepared to consider equity release.
Alternative routes to funding money is needed to go into a and achieving their retirement goals.
retirement: the changing pension, meaning a family’s route In certain countries, families already
savings life cycle to a secure retirement may look have more wealth tied up in housing
What families do when they very different in future years, than they do in pensions. For
reach retirement will vary greatly. with less reliance on conventional example, in the UK, housing assets
With the drop off in savings ‘pensions’ saving products. are twice as big as pension assets
ratios in developed economies and, importantly, they are more
and the expansion of home and The growth of housing equity as a evenly distributed, which means
business ownership, there are result of increasing home ownership that more people could potentially
clearly significant changes in how will, in some societies, provide tap into them.16
families accumulate wealth. This families with additional routes to
might help to reduce how much filling any retirement income shortfall
Case study:
Home equity release in the US and UK
The UK and the US could be seen as prime examples of countries where options like equity release could be
utilised to fund retirement. Clearly, there are a number of competing demands on using housing wealth.
In all, only 20% wanted to Some 38% of people in the UK Among the target market for
leave their children their home were unsure about using wealth these products – those people
or property. Given these in their home. This compares over the age of 50 – the level of
competing demands, it is with 43% in the US. uncertainty remains very high in
not surprising that this year’s both markets with 31% in the
findings reveal that many people UK and 43% in the US. Greater
are simply unsure about their ‘at retirement’ advice and
options with as many as one-in- planning could play a significant
five people currently prepared to role in helping to reduce this
consider equity release. widespread uncertainty.
16. The First report of the Pensions Commission report (UK) 2004, p.172

The ‘Preparedness Gap’ Although a further 43% feel
Faced with a combination of prepared to some degree, they do
additional short-term economic not have a clear sense of what their
pressures and long-term financial retirement income will look like.
responsibility, it is clear from the When we look at the number of
findings in this year’s report that people in each country who felt very
families remain uncertain about how well prepared when it came to their
best to exercise this responsibility. long-term finances, India comes
out as the country which feels most
13%
financially prepared for the long-term
with just 58% needing to make
further preparations; this is followed
by the UK where 3-in-4 feel under-
prepared. Globally, 87% or around 7
out of every 8 people feel less than
very well prepared.
Currently, just 13% of people around
the world feel that they are very This sense of unpreparedness is
well prepared to cope with their stronger amongst women than men.
future of retirement.
Chart 11 – Global perceptions of preparation
Fig. 13 Global perceptions of preparation
Very well prepared – I don't feel I need any advice 15% 11% Global value 13%
Fairly well prepared – I have done some planning but

44% 42% Global value 43%
I'm not sure exactly what my retirement income looks like
Fairly unprepared – I have not done much retirement planning
28% 30% Global value 29%
but am not confident about my retirement income
Very unprepared – I have not done any retirement planning 12% 16% Global value 14%
Male
Female

Fig. 14 The preparedness index by country
(those people who do not feel very well prepared for retirement)
0 – Perceptions of preparedness by country
South Korea 98%
Japan 97%
Brazil 94%
Mexico 92%
China 91%
Singapore 91%
Hong Kong 89%
Turkey 89%
Global 87%
UAE 87%
United States 86%
France 85%
Saudi Arabia 84%
Canada 83%
UK 75%
India 58%
The
The
Future
Future
of of
Retirement It’sIt’s
Retirement time
time
to prepare
to prepare Part Three 31
Chapter
43%
This lack of preparedness stems Financial education in focus
from numerous factors including In addition to financial advice, there
a lack of income, the presence of is currently a global debate about
household debt, and the lack of how best to equip people with
incentives, not to mention apathy. the necessary life skills to manage
However, as the findings below their ever changing and ever more
illustrate, under-preparedness complex financial needs. Financial
is also a by-product of a lack of are feeling ‘fairly’ or ‘very’ education should be seen as the
awareness. The findings reveal unprepared for retirement. basic building block for achieving
a strong correlation between greater awareness and engagement
feelings of unpreparedness and a by families in seeking to meet
lack of access to financial advice. Furthermore, the least well prepared their financial needs. The US has
While 47% have never accessed – those in the younger age groups a long history of providing online
financial advice, a similar number of and women – are also the ones planning tools to support the 401(k)
people (43%) are feeling ‘fairly’ or who are less likely to have accessed generation. The UK and France
‘very’ unprepared for retirement. any form of financial advice. have gone further in implementing
national programmes to improve
education covering initiatives in
schools and colleges, targeting those
still in formal education alongside
workplace initiatives for those in
adult life.
Chart 13 – Have you ever accessed financial advice or guidance?
Fig. 15 Have you ever accessed financial education or guidance?
General financial guidance through a family member or friend 23%
General financial education or guidance through online tools 16%
General financial education or guidance through media or online planning tools 12%
General financial education or guidance through school, college or university 10%
General financial education or guidance through your employer 8%
General financial education or guidance through government or financial regulator 7%
General financial education or advice through a debt advisor 6%
None of the above - I have never accessed any form of financial education 43%
The reason for this chart totaling 125% is down to the question being multiple choice – so there are more responses than actual
Therespondents
reason formeaning
this chart totaling
the total 125%
is greater is 100%.
than because
the question was multiple choice – so there are
more responses than actual respondents, leading
to the total being greater than 100%.

43%
This year’s report highlights the In India, people see their employer
major shortfalls in access to financial as a useful channel for financial
education. In total, 43% of the information. It is notable that people
global survey has never accessed in both these countries have an
any form of financial education. If appetite for learning about finances
Chart 14 –people
People who
are not haveabout
educated accessed
their no financial guidance through all channels – which is not
opportunities and responsibilities, widely shared in other countries.
then it is difficult to see how they have never received any form This helps to explain why the
can act upon them. Without action of financial education. education gap is lower. In China,
to improve education, it is unlikely it stands at half the global average.
that we will see the preparedness In India, the gap falls to just one-third
gap close in future years. Some countries did reveal important of the average.
differences. In China, there is a
preference for online planning tools.
Fig. 16 People who have accessed no financial guidance
France 66%
Japan 60%
UK 56%
Saudi Arabia 54%
UAE 51%
United States 48%
Canada 44%
Brazil 44%
Mexico 44%
Global 43%
Turkey 43%
South Korea 42%
Singapore 34%
Hong Kong 33%
China 19%
India 13%

Keeping it in the family trust their bank as a popular primary The report explores later how many
One of the report’s key findings source of advice: as many as 1-in-5 families are looking to use short-
reveals the importance of family as people in France will go down this term savings to pay off debts and
a source of educating the individual route. Globally, the figure is 1-in-8. bills, while others are looking to
about financial matters. This is This rises to 1-in-4 when people build short-term savings to help
supported by several studies which considered all other sources. smooth any variations in household
show how the financial behaviour income during the downturn.
and attitudes of parents shape their The biggest single factor affecting Perhaps naturally, people will see
children’s financial behaviour in later this choice is the extent to which savings institutions as a starting
life.17 It is imperative that more is the source of advice is trusted. point for advice. However, the fact
done to improve financial education Overall this mattered most for that families do not yet appear to
within the family. 26% of people and was considered see insurance as part of the solution
more important among people in suggests that bank advisors could
The role of the financial Latin America, Japan, Korea, India, have a major opportunity in the
services industry Singapore and the UK. However, coming years to use their trusted
Alongside long-term strategies to issues such as affordability status in helping to broaden their
raise standards of financial education, and accessibility also matter to clients’ “survival” strategies.
there needs to be attention paid to consumers when searching for Professional services such as
advising people in the short- and professional sources of guidance. accountancy and tax planning are
medium-term. When looking at still seen very much as niche
how people intend to survive the Alongside trust, the fact that people services but with the growth of
current economic downturn, it is choose banks over other sources tax-incentivised retirement
clear that many people will turn may be reflective of perceptions products the need, and demand,
to others for advice and guidance. about household needs during the for accountancy and tax planning
The findings showed that people current economic climate. services will surely grow.
17.’ Young people, money management, borrowing and saving’, Personal Finance Research Centre, University of Bristol, April 2004

Fig. 17 Global access to financial advice by age
50
45
40
35
30
Percentage
25
20
15
10
30-39 40-49 50-59 60-70
Professional financial advice through a bank or insurer
Professional financial advice through an independent advisor
Professional financial advice through your employer
Chart 15 – The importance

Professional financialof trust
advice through an accountant
None of the above – I have never accessed any form of professional advice
Fig. 18 The importance of trust
Japan 36%
South Korea 34%
India 31%
Mexico 30%
UK 29%
Singapore 29%
Brazil 28%
Global 26%
United States 26%
UAE 26%
Canada 24%
China 20%
France 20%
Turkey 18%
Saudi Arabia 17%
Hong Kong 16%

Are you optimistic about how long
the economic downturn will last?

Part Four
Supporting a savings habit:
The impact of the economic
downturn on family economics
Clearly, any judgement on the feasibility of preparing adequately for the

retirement of the future has to be seen from the context of the current economic
downturn. After 15 years of relatively benign economic conditions, we now find
that the downturn is placing family budgets under increasing financial strain. It is
therefore important to chart what impact the current economic climate is having
on family preparedness as well as looking at what survival strategies households
are applying to make the most of the current situation.
Key Facts
Negative investment returns since 2007 have reduced the value of

pension assets by around US$ 5 trillion18. With half of the world’s
pensions assets located in the US, households there are most affected
Families are pessimistic about the global economic outlook – 40%

expect the downturn to last another 1-2 years. Another third expect
the downturn to last beyond two years
In total 92% of families have changed some element of their finances to

help them survive the downturn
The biggest impact so far has been on consumption, with over

one-quarter of households having cut their spending
The great de-leverage of family balance sheets is under way as

reductions in borrowing see families make less use of credit cards and
attempt to pay down current debts
There are some signs that families’ survival strategies include

taking steps to reduce their safety net: savings are being used up,
some families have stopped saving for retirement and insurances
are being cut
1-in-6 people globally say that the downturn has had a negative impact
on whether, or how much, they are currently saving for retirement
Short-term savings products and general insurance in particular seem

to be playing an important role in helping families feel protected at the
current time
18. Asian Development Bank, “Global financial turmoil and Emerging Market Economies: Major contagion and a shocking loss of wealth?”, March 2009
38 The Future of Retirement It’s time to prepare Part Four

40% of respondents thought the global economic downturn
would last somewhere between 1-2 years.
Families’ views on how long Differences between downturn will affect them, possibly
the downturn will last men and women reflecting the fact that they may
This global survey (conducted in Within the overall trends the findings already be retired and living on a
March 2009) revealed that 40% also show that women are less fixed income. Also, the findings
of respondents thought the global confident than men, while younger reveal that within the family, it is
economic downturn would last people are less confident than women who are more likely to
somewhere between 1-2 years. older people. make the financial decisions and
While this may provide a measure take responsibility for those issues
of the expected length of the This more negative opinion among causing the family the greatest
downturn, it does not necessarily women and the young is perhaps financial pressures.
signify the true severity of its impact a reflection of numerous social and
on household finances, given the economic factors. Twice as many
Chart 16 – Length ofterm
longer theimplications
economicfor downturn
pension people aged 60-70 compared with
assets and retirement funds. those aged 30-40 do not think the
Fig. 19 Length of the economic downturn
6 months or less 5% 5% Global Value: 5%
6-12 months 26% 22% Global Value: 24%
1-2 years 41% 39% Global Value: 40%
2-3 years 17% 20% Global Value: 19%
3 years or more 11% 14% Global Value: 13%
Male Female
The Future of Retirement It’s time to prepare Part Four 39

There is a clear gender divide within
Generally speaking, women are less Differences between countries
the family which sees men more likely to save in their own right but When looking at the findings in
likely to take care of the long-termwill rely more on their spouse or more detail, it is clear that, overall,
financial matters such as investing partner. Where they are saving, it is more people are pessimistic than
for the long-term and saving in more likely to be for their children. optimistic and that the optimists are
a pension. This could explain why it is that distributed unevenly with more living
women, with less of a personal in emerging economies.
Women on the other hand are more safety net in place, have a greater
likely to take care of household sense of foreboding about the In India, only 11% thought the
budgeting. As the findings reveal, current downturn. This lack of a recession would last 2 or more years.
the great de-leveraging of the safety net may also help to explain In Japan, 5 times as many people
Chart 18family
– Financial decision makingwhy
balance sheet is seeing the
gender divide
it is that younger people also – over half – thought this would be
average household become more feel more vulnerable in the current the case.
conservative with its outgoings. environment. Both groups are simply
Families are spending less and less prepared financially to deal with
borrowing less. an economic downturn.
Fig. 20 Financial decision making gender divide
Long term saving and investments Managing the household budget
45
40
35
30
25
Percentage
20
15
10
Male Female Male Female
I take sole responsibility – I live alone/I am single
I take sole responsibility – my spouse/partner leaves it all
I share responsibility with my spouse/partner
I leave all the finances to my spouse/partner
I live with my parents – they take care of the finances
I live with my children – they take care of the finances
Does not apply

Fig. 21 Downturn lasting 12 months or less/2 years or more
t 17 – Downturn lasting 12 months or less / 2 years or more
Less than 12 months Over 2 years
59% 11%
India
48% UAE 17%
45% Brazil 23%
38% Turkey 25%
37% Mexico 21%
29% Canada 26%
29% Global 32%
26% Hong Kong 31%
24% China 32%
24% South Korea 35%
23% United States 34%
18% Singapore 36%
18% Saudi Arabia 43%
15% France 43%
15% Japan 55%
13% UK 40%

92% of global households report some effects on their financial
behaviour. This impact is being felt more by women and younger people.
While many emerging economies so pessimistic. However, it doesn’t Surviving the downturn: The
will continue to record positive explain why families living in other great household de-leveraging
growth, it might not prove export-led economies such as China Families clearly feel the need to sort
sufficient to support the sort of and Korea do not share this attitude out their balance sheet, which means
transformational changes those of pessimism. With IMF predictions focusing on outgoings and liabilities
societies need in terms of suggesting a return to growth during first. This survival strategy can be
widening the benefits of economic 2010, the families in the Future of clearly seen in a marked increase in
development and improving incomes Retirement global survey – while the number of households spending
across the population. Figures slightly pessimistic – might not be less on major one-off items like cars
from the World Bank show that the too unrealistic. or family holidays.
impact of the economic downturn
could actually push an additional 90 The economic downturn: It seems that in this downturn, US
million people around the world into Impact on short-term finances families are no longer willing (or
poverty during 2009.19 Moreover, a The impact of the economic perhaps able) to perform the role of
longer and more severe downturn downturn will necessitate urgent “consumer of last resort”. This title
would negatively impact an emerging action to review families’ financial already seems to have shifted east
economy’s potential demographic plans. Already, before the downturn – with the exception of the British
dividend at a critical stage in the has even taken hold, it seems that where consumer spending is holding
development of its economic and 92% of global households report up – to the emerging economies.
population cycle. some effects on their financial In China, like Britain, only 8% have
behaviour. This impact is being felt made major cutbacks. However,
Is there a correlation between more by women and younger people. the most reliable consumers are to
family optimism and what is be found in India where only 7% of
going on in the real economy? households cite cutbacks in their
Some of the HSBC Future of spending as the major impact of
Retirement report’s surveyed the downturn.
countries – particularly industrialised
export-led economies – are faced
with severe contractions in output.
This principally affects Korea and
Japan, alongside economies in
Europe. This should explain why it is
that Japanese families are currently
19. Secretary of State for International Development Douglas Alexander’s speech at Chatham House on 24 February 2009.

Chart 19 – Impact of economic downturn
Fig. 22 Impact of the economic downturn so far
I have become more careful with my expenditure 24 28
I have reduced my spending on goods and services 11 27
I have reviewed all my finances 8 22
No impact at all 8 15
I have cut back on large purchases (new car, holiday) 8 24
I have used my income to pay off debts and loans 6 14
I have used my savings to pay debts, bills and loans 5 13
I have lost my job 5 8
I have stopped using my credit card 4 16
I have built up savings fund/emergency savings 4 12
I have stopped making any savings 4 15
I have reduced my fuel/electricity bills 3 22
I have become more entrepreneurial 3 11
I have switched my investments from equities to cash 2 9
I have increased my spending on goods and services 1 8
I have switched my investments from cash to equities 1 8
I have cut back on insurances 1 12
I have stopped saving into a pension 1 10
I have lost my home 1 7
Main impact Other impacts
All figures shown percentages
The
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13% of families have used up savings in order to pay off debts.
After reductions in spending the There has been a distinct ‘credit Survey respondents were also asked
next obvious reaction is to pay down freeze’ among consumers as they what impact debt is having on their
debt. Following what has been lose their appetite for spending ability to save for retirement. Overall,
referred to as a ’60 year period of money they do not have. Families nearly 1-in-5 people cited debt as
credit expansion’20 the presence of have reduced the extent to which having an impact. This concern was
household debt is a major constraint they rely on credit cards and loans, particularly pressing for households
on families’ short-term finances and with 16% of families not using their in the UK, the US, Canada, Mexico
retirement planning [Fig. 23]. We credit cards. and Singapore. The negative impact
can see from the Fig. 23 that while on savings is being exacerbated by
household debt in North America and In the family hierarchy of needs, other cuts in the family safety net.
Europe was relatively high compared having less debt in the current Overall, nearly half of respondents
to GDP, the emerging markets, and climate is a greater priority than do not envisage buying any financial
in particular those in Asia, were holding more savings. To date 13% products during the coming year.
catching up. of families have used up savings in
order to pay off debts.
Fig. 23 Private Sector Credit to GDP (annual average, in percent) 21
1961-2000 1961-1970 1971-1980 1981-1990 1991-2000
Brazil 27.3 25.7 23.3 31.5
Latin America 23.2 15.2 22.0 27.3 29.5

(excluding Brazil)
East Asia 64.5 18.4 27.7 50.7 98.7

(excluding Japan)
Middle East and 38.7 24.5 37.9 43.3 47.2

Central Asia
North America 70.4 44.9 64.7 76.3 95.8
South Asia 17.5 10.1 15.4 20.4 21.2
Sub Saharan 20.9 19.6 22.3 22.7 25.0

Africa
Western Europe 68.8 49.3 55.0 74.4 90.7
20. The crash of 2008 and what it means, George Soros, 2009
21. Bosworth and Collins (2004)

Will less debt help families While the findings did show that However, the current contraction
to save more over time? around 1-in-6 people might be in the availability of, and demand
The findings above suggest that encouraged to save in the absence for, consumer credit could signal
paying down debt is crowding out of debt, having debt does not the start of an important shift
the need to save. This view has long
necessarily mean people saving less. in family behaviour away from
been used to portray debt as an Both the type and level of debt make current consumption levels towards
obstacle to saving. In those countries
a difference. For example, mortgage prudence and long-term planning.
with particularly high exposures to
holders in the UK are more likely to Alternatively, this may simply reflect
consumer debt – particularly the be pension savers, while those with the short-term impact of families
US and the UK – the drop off in manageable levels of debt are unlikely restoring the balance sheet to good
household savings ratios and the to be put off saving. High levels of net health. In which case the use of such
spread of consumer credit has led saving may also reflect other factors survival strategies could be seen
to fears over the slow death of the
such as higher numbers of younger as rational.
“savings culture”. people still in the working population.
Chart 20 – Debt as an impediment
Thisto save
helps to explain why many
emerging economies – including a
number of countries in East Asia
– have managed to combine high
savings levels in recent years while at
the same time expanding the level of
household debt.
Fig. 24 Debt as an impediment to save
Mexico 31%
United States 31%
Canada 28%
Singapore 27%
Saudi Arabia 27%
Brazil 23%
UK 23%
Global 18%
Turkey 17%
UAE 13%
China 12%
India 11%
Hong Kong 11%
France 10%
Japan 8%
South Korea 6%

Against the backdrop of increasing job losses around the world there is
no perceivable acknowledgement by families that they should consider
steps to protect their income.
Creating a broader safety net The economic downturn: Falling contributions levels
Against the backdrop of increasing Impact on long-term finances We can see the emergence of a
job losses around the world there is Some of the short-term impacts of new trend in families’ priorities to
no perceivable acknowledgement recession are easily measured: when cut household spending, pay off
by families that they should consider families cut spending, the outcome the credit card, and build up an
steps to protect their income. is seen immediately in the shops. emergency short term savings fund.
The impact on retirement planning While 13% of families began to
Given the possible fallout of an however is not so clear-cut and save for retirement during 2008, a
economic downturn, it is surprising while the changes in behaviour are greater number of existing pensions
perhaps that people do not link this evident, not all the outcomes are savers either reduced contributions
need for protection with the need for apparent. Overall, these changes in or ceased doing so. At a time when
insurance products. 12% of people behaviour show that the economic pension assets are coming under
claim they might consider cutting downturn is already having a pressure it is important that families
back on insurances. negative impact on the world’s level continue with long-term savings.
of pension preparedness. Less than Given the financial pressures facing
The products which are most likely 1-in-5 families in the survey have employers, contributions into
to remain in people’s line of sight are so far left their retirement plans workplace pension arrangements
general insurance products – chiefly unchanged, whereas just under have been particularly hit during
motor, travel and home insurance 1-in-10 people expect to delay the the financial crisis – funding levels
– which are by far the most widely onset of retirement as a result of the in defined benefit plans are down
recognised needs in the current global downturn. This figure rose to by 10% since the start of the crisis,
climate. This may in part reflect the 1-in-6 people in Singapore and 1-in-7 which it is estimated has added US
fact that people widely recognise people in the US. $2 trillion to the pension funding
these risks and act on them. The gap.22 To families this trend is almost
same cannot be said of other aspects invisible as they will not feel its
of the family safety net, which seem impact until retirement, which for
to risk being sacrificed in the race to many people in those schemes will
pay off debt. not be for years to come.
22. OECD Pension Markets in Focus – Issue 5 – December 2008, p. 1

Fig. 25 Expected further impact of the economic downturn
hart 21 – Impact of economic downturn on retirement ages
19%
No - I will retire as planned
No - I don't currently have any retirement plans 23%
Maybe - I will see how long the recession lasts 15%
9%
Yes - I intend to delay retirement
Yes - I intend to bring forward my retirement 1%
Yes - I intend to come out of retirement and return to work 1%
Yes - I intend to work part-time and phase my retirement 3%
I am already retired 9%
I do not intend to retire 10%
Don't know 10%
The
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It seems clear that families in North and Latin America, and to a
lesser extent Europe, need greater support to maintain pensions
savings right now.
It is clear from the findings that Falling fund values best to use their pension savings
pension savings have proved more The less positive picture with regards to purchase an annuity. One of the
resilient in Asia – where fewer to people delaying retirement in the key messages running through this
people have cut back on making US and Singapore, is not surprising report is the need to build access
pensions contributions during the given the wider exposure to defined to advice and guidance. Nowhere is
downturn. Across many Asian contribution personal pensions in this more pressing than in the area of
countries where long-term savings these countries. Families here will planning ‘at retirement’ and annuity
are well established, fewer families be more keenly aware that falls in purchase during the current climate
have stopped pension savings the value of their personal pension of volatility and uncertainty.
– Japan (just 2%), Korea (8%), assets will result in lower retirement
Singapore (8%), Hong Kong (11%) incomes, meaning the need to keep In the case of mandatory Defined
– compared with North and Latin working longer and save more. A Contributions (DC) arrangements
America – Mexico (24%), Brazil recent report by the OECD revealed where it may appear that people
(16%), Canada (14%) and the that the ratio of private pension could be over-exposed the impact
US (13%). assets to the OECD-area’s GDP had is likely to be relatively low given
reached about 111.0% in 2007.23 that the systems in question are still
In Middle Eastern countries, 6% By October 2008, the value of total quite young. Mexico introduced its
of UAE respondents and just 4% pension assets in the OECD-area had scheme in 1997 while Hong Kong
of KSA survey participants have fallen to about US $23 trillion or 90% introduced its scheme later still
stopped saving in a pension. of GDP.24 This loss has not been in 2002. The age profile of these
However, this will in part reflect distributed evenly across the world. schemes is such that there are
the fact that pension saving is less Most of the lost value in pension relatively few older savers who will
common in the first place. assets has been incurred by pension be affected. Default investment
funds in the US as they account for funds contained within those
It seems clear that families in North more than half of all OECD pension schemes may also ensure that older
and Latin America, and to a lesser fund assets and had the second workers are shielded from high
extent Europe, need greater support worst investment performance. exposure to volatile or risky asset
to maintain pensions savings right classes. Indeed, thanks in large part
now. They are also registering Within these overall figures, an to local investment restrictions 82%
greatest support for attempts to individual’s age profile and approach of pension fund assets in Mexico
encourage savings through tax relief. to asset allocation will be important are held in government bonds.25 This
This all points back to the important in determining how well they are takes us on to the important matter
role of governments as ‘enablers’ and weathering the current storm. The of asset allocation.
the need for them to support families ‘at risk’ individuals are those closer
to save in the current climate. to retirement age where large falls in
asset values at the current time could
result in permanent losses in income
if they are about to consider how
23. OECD Private Pensions Outlook 2008

24. OECD Private Pensions Outlook 12th February 2009
25. International Organisation of Pension Supervisors, website, 2009

Chart 22 – Household priorities through the downturn
Fig. 26 Household priorities for the coming year
Increase retirement savings 3% 10%
Reduce retirement savings 1% 8%
Stop retirement savings altogether 1% 7%
Reduce levels of consumer debt 7% 15%
Reduce levels of mortgage debt 2% 8%
Chart 23 – Percentage of people who have stopped saving into

Main
Other
pension because of the downturn
Fig. 27 Percentage of people who have already

stopped saving into a pension because of the downturn
Mexico 24%
Brazil 16%
Canada 14%
United States 13%
India 13%
Turkey 12%
Global 11%
UK 11%
Hong Kong 11%
France 10%
UAE 8%
China 8%
Singapore 8%
South Korea 8%
Saudi Arabia 5%
Japan 2%

While there has been some shift in risk appetites away from equities
and into cash, this shift appears marginal.
Asset allocation annual returns in excess of 6% for much they save for the long-term,
After years in which individuals have both the UK and US.26 However, but they have also changed the
enjoyed a relatively low-risk, benign the current economic conditions way they save. However, the
economic environment, 2008 and are unlike previous stock market expected shift from more risky
2009 have come as something of downturns in that families are also assets (equities) towards less risky
a wake-up call. dealing with the presence of a major ones (bonds and cash) has not been
contraction in the availability of pronounced among families. While
It is important to stress that the credit, which could help prolong the there has been some shift in risk
impact of the economic downturn length and severity of the downturn, appetites away from equities and into
cannot be measured on the basis of adding to its impact on families. cash, this shift appears marginal.
a single year’s investment returns.
If one looks at the rate of return over The severity of economic conditions
the last 15 years then a much more means that not only have families
positive message appears, with real and businesses cut back on how
26. OECD Pension Markets in Focus – Issue 5 – December 2008, p. 4

The Household Risk index shows Overall, there has been only a slight At the household level it is clear that
the net shift in households moving shift towards more risk-averse families – like many pension fund
into equity investments minus those investment behaviour. Only UAE managers – are increasingly wary of
moving into cash. The higher the has become more risk-taking, while investing in high-risk investments at
minus score the less risk-taking Mexico, Brazil and Japan have the current time. So too, they appear
families in that country have become. remained neutral over the last 12 largely reluctant to consider investing
The higher the plus score, the more months. The rest of the world has beyond their domestic market. While
risk-taking they have become. While become less risk-taking. However, such sentiments are to be expected
this index seems fairly stable, it when compared with the more this does lead to potential imbalances
does hide some major swings in significant shifts in asset classes in household wealth towards low-risk
household investment behaviour among institutional and professional and low-return options which over
within countries. This is particularly investors, it raises the question as to the long-term may inflict greater
the case in Latin America where whether families might be reacting damage on families’ wealth by
large increases in equity investments too slowly to events, with the danger starving their investments of higher
in some households (up 16% in that their investments may be too potential returns. Equally, an over
ChartMexico
24 – Household risk
and 15% in Brazil) haveindexa
been risky or too cautious. concentration in investments in
cancelled out by even larger numbers one’s domestic market will likely
of households moving out of equities concentrate risk. This all presents a
and into cash (up 16% in Mexico and strong argument for greater access
15% in Brazil). to investment advice in helping
families to strike the right balance
in what are particularly volatile
investment markets.
Fig. 28 Household Risk Index
UAE 1%
Brazil 0%
Mexico 0%
Japan 0%
Turkey -1%
UK -2%
South Korea -2%
India -2%
France -2%
Global -3%
United States -4%
Canada -4%
Saudi Arabia -4%
China -4%
Singapore -5%
Hong Kong -11%

Conclusions
Increased responsibility for Individuals More focus on long-term preparation is needed

This report illustrates clearly that now is the time for The benefits of certain products like general insurance
individuals to take action. Major demographic trends and and cash bank deposits are well understood and
the need for pension reforms will place the responsibility family needs are acted on. However, the retirement
for making future pension provision largely with the need (providing the long-term safety net) alongside
individual. This, combined with reductions in social life insurance needs (providing a more medium term
security and the switch from final salary to money safety net) are less well understood. Consumers are
purchase schemes, means that the state and employers simply not as well educated or aware when it comes
will remain important as enablers in this process, rather to understanding these needs or acting on them.
than performing their traditional role in providing Considering the additional long-term risks being placed
pension benefits. on families, it is important that they are encouraged to
understand these risks and manage them effectively.
The growth of a preparedness gap Women and younger people (aged 30-40) are key ‘at risk’
The future of retirement will stress the role of the groups who need to give greater consideration to their
individual and the need for personal responsibility. The long-term financial planning.
findings show clearly how poorly prepared families across
the world are when it comes to exercising this new found Families need support through incentives
responsibility. As families are only partially effective in and advice
meeting these responsibilities, there is in effect a major The build-up of consumer credit reveals how until
preparedness gap being played out in all our countries recently many families have been focused on short-
producing shortfalls in household provision. term finances. This may now be having an impact in
terms of ‘crowding out’ savings as consumers strive
to reduce their borrowings. In order to reduce the risk
of families not being adequately prepared, there needs
to be encouragement to return to long-term thinking
and incentives for long-term savings. This imbalance
in household finances is in part driven by shortfalls in
access to education and advice. It is clear that families
need help to better understand their new found
responsibilities, particularly when exercising complex
long-term decisions over where and how to invest.
52 The Future of Retirement It’s time to prepare Conclusions

Programmes to improve financial literacy The response will not be simply about promoting
Here there is a clear role for government in developing pensions. The future of retirement will depend on
programmes to aid financial literacy. This could clearly individual action rather than institutions. Whereas
incorporate formal channels such as schools and colleges institutions may produce a homogeneous “one
or work places. It could also seek to tap into informal size fits all” response based on rigid approaches
channels given our findings, which reveal the important to pension savings, families will generate a more
role performed by the family in some societies in helping heterogeneous approach. That means more diversity
to educate young people. If parents are to be a conduit in in asset accumulation and decumulation across society
teaching financial matters, then clearly their capacity to as a whole. Solutions need to reflect this diversity.
do so needs to be built. Depending on how people accumulate assets this will
inevitably need to be supported through non-pensions
Better access to a diverse range of financial decumulation options such as equity release which is
products to meet long-term needs designed to help people access untapped
Families also need help to better understand how to housing wealth.
act on those responsibilities. In some countries this will
involve the need to better develop access to products. The role of the financial services industry
In most countries governments and financial product Building this understanding involves the financial
providers have focused to date on developing savings services industry. The decisions expected of families
products for the “accumulation” phase. One of the and individuals are complex and require guidance. Not
biggest calls to action for governments – in exercising only do banks and insurers provide access to products,
their role as an enabler – is the need to pay greater they also ensure access to financial advice. Again, the
attention in developing “at retirement” products for the findings show that to many families their bank is a major
“decumulation” phase. Getting people to save is only “go to” source of trusted advice. This role needs to be
the starting point. Giving them the tools to make the best promoted alongside other forms of guidance as a means
of those savings in retirement is a critical next step. For of equipping families with the necessary context in which
example, the trend towards personal pensions suggests a to make financial planning decisions which contribute to
need to also develop wider access to annuity and flexible realising the positive retirement of the future.
drawdown products.
The Future of Retirement It’s time to prepare Conclusions 53

Do you feel financially
prepared for later life?

Appendix One
Survey methodology
The trendsetter population In reflecting who the target group Mature and transitional economies:
The findings for the HSBC Future of is, the research was conducted via The Future of Retirement.
Retirement report 5 are based on the online questionnaire for the first time.
responses of over 15,000 individuals Industrialised Economies
aged between 30 and 70 years. These trendsetters were located in Canada
a number of countries covering a France
These are those people living in range of industrialised as well as Japan
urban areas, likely to be more emerging economies in Europe, United Kingdom
educated and with greater access Asia, North and Latin America United States
to the Internet. They will generally and the Middle East.
be much more exposed to the Emerging Economies
service-based economy and will be Brazil
converging more rapidly towards China
the attitudes and behaviour of their Hong Kong
peers in the industrialised world, India
which includes patterns of behaviour Korea
towards retirement planning. Mexico
Saudi Arabia
Singapore
Turkey
United Arab Emirates
56 The Future of Retirement It’s time to prepare Appendix

Chapter One
Appendix Two
The changing population
profiles across the world
The three pillars of pension provision
State Occupational Personal
Social Security systems Employer-sponsored Additional voluntary

provided through defined benefit and defined contributions may be
government taxes. This can contribution schemes. amassed through the growth
either be on a funded basis Typically, employers will of defined contribution
(where funds are ring-fenced make some contributions in schemes. These plans
to pay out future benefits) the form of ‘deferred salary’. typically provide some tax
or on a pay-as-you-go basis In some countries employer benefits on contributions.
where benefits are paid for contributions may Important implications for
using current tax revenues. be mandatory. individuals in managing
Benefits will be subject to a these assets (i.e. investment
minimum retirement age. risk and longevity risk).
The Future
The Future
of Retirement It’s time
of Retirement It’stotime
prepare
to prepare
Appendix Two 57
Chapter
The World Bank’s Three Pillars of Pension Provision
Reform will shift responsibility from governments to individuals
Country State Occupational Personal
Brazil Reforms in 1988 Arrangements have been Experienced a major

undermined the fiscal put in place but take increase in fully-funded
sustainability of the up has been limited. personal pension
pay-as-you-go scheme. assets since reforms
Continued problems with were put in place
funding deficit though during the 1990s.
remains committed
to social provision.
Further reforms likely.
Canada Universal social security DB, DC and hybrid Popular Individual

system in place with occupational schemes savings plans offer tax
retirement age set at 65. operate through relief on fully funded
collective bargaining DC arrangements.
or on a voluntary basis.
Tax relief available on
registered pension plans.
China Unfunded pension assets Reforms to the State The introduction of

equalled three times GDP Owned Enterprises Enterprise Annuities
in 2005. Seen a major drive (SOE) have sought to completes China’s
to promote personal and limit costs by reducing shift towards a three
occupational provision. entitlement to pensions. tier pension system.
The EA benefits from

tax relief and flexibility
at retirement.
France The ‘Fillon’ reforms laid Already had a well Reforms in 2004 led
the foundation of a funded established second to new products
pension system. France tier system covering aimed at developing
previously relied on a executives (AGRIC) and personal pension
pay-as-you-go system. non-executives (ARRCO). provision. The new
PERP provides annuities
and lump sums.
Hong Kong The state provides a The mandatory Provident There are retirement
universal Social Security scheme covers 25% products available
Allowance (SSA) of the population. in Hong Kong.
and a means-tested
comprehensive Social Low personal tax
Security Assistance rates make tax relief
(CSSA) to all residents. a less effective
incentive to save.
India Largely pay-as-you-go DB and DC mixed system The New Pension

social model providing providing benefits through System (NPS) sees the
retirement benefits at 60 an employee provident introduction of a DC
for women and 65 for men. fund which can be cashed arrangement with tax
at 58. Allows for lump sum relief and flexibility
payments to be made. at retirement. Will
eventually provide
benefits for 87% of
Indian workers.
Japan A pay-as-you-go Five types of voluntary Guaranteed Minimum

National Pension occupational pension Accumulation Benefits
Programme providing for schemes to supplement (GMAB) products exist
retirement at age 65. the National Pension and premiums up to a
Programme are certain level attract a
currently operated. tax free allowance.
58 The Future of Retirement It’s time to prepare Appendix

Chapter Two
Country State Occupational Personal
South Korea Mandatory pay-as-you- Voluntary personal

go National Pension pension arrangements
System (NPS) providing have been available
for retirement at age 60, in Korea since 1994.
which will be increased
to 65 until 2033. The
state-entitlements are
earnings related.
Mexico Social insurance scheme Mandated individual

was in place until accounts entered force
reforms in 1997. Workers in 1997. AFORES allows
entering scheme after for additional voluntary
that date are migrated contributions with tax
to mandated scheme. relief on contributions
and investment income.
Saudi Arabia Mandatory pay-as-you-

go scheme providing
for retirement at age
55 for women and
age 60 for men, The
state-entitlements are
earnings related.
Singapore There are no retirement The mandatory Provident There are retirement
payments by the scheme provides coverage products available
state in Singapore. to 65% of workers though in Singapore.
replacement income is
low. However, contribution Low personal tax
rates have risen over time. rates make tax relief
a less effective
incentive to save.
Turkey Still largely reliant on Some mandatory elements Seeking to develop

social security which – OYAK, TTK – which personal provision
provides benefits at 60 for combine elements of on a voluntary basis
men and 58 for women. DB and DC. Voluntary with tax relief.
Problems with funding elements also combine
deficit though committed DB/DC arrangements
to social provision. to provide ‘top up’
Further reforms likely. on social security.
United Arab Emirates There are no retirement The occupational

payments by the state Retirement Pension
– Abu Dhabi
in UAE/Abu Dhabi. was extended to the
private sector in 2003.
Providing retirement
benefits for women at
55 and for men 60.
United Kingdom Complex two-tier system Mix of DB and DC Personal Pension

provides benefits from arrangements in place. arrangements
60 for women and 65 Largely funded and introduced in 1988 with
for men. Funded on a benefit from tax relief. further reforms through
pay-as-you-go basis. Public sector unfunded Stakeholder schemes to
liabilities over half of GDP. widen scope. The new
compulsory Personal
Accounts will take
effect from 2012.
United States Social security is limited Mix of DB and DC Tax incentivised

offering means-tested arrangements in place. schemes like the
support for those Largely funded and benefit Individual Retirement
on low incomes. from tax relief. Employer Account (IRA) already
sponsored schemes like provide widespread
401(K) are well established. coverage.
The Future
The Future
of Retirement It’s time
of Retirement It’stotime
prepare
to prepare
Appendix Two 59
Chapter
Do you expect to delay
your retirement as a result
of the economic downturn?
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Cicero Consulting Investing in later life examined data
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Cicero Consulting designed and analysed countries and territories around the world, to
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Future of Retirement 2009 HSBC

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The Future of Retirement

It’s time to prepare

The perfect economic storm  7 Case study:

The impact of the population mega-trend: Part Four

Pensions reform: Asset allocation 50

Retirement Planning where you are 62

The Future of Retirement It’s time to prepare Contents 

 The Future of Retirement It’s time to prepare Chairman’s Foreword

The Future of Retirement research plays an important

Working with Cicero Consulting, we have produced

The Future of Retirement It’s time to prepare Introduction 

 The Future of Retirement It’s time to prepare Executive Summary

The Future of Retirement It’s time to prepare Executive Summary 

The Future of Retirement It’s time to prepare Executive Summary 

In the opening section of this report we go back to basics in examining how

The world’s population is set to increase from 2 billion to over 9 billion

Japan – the demographic bullet train or ‘Shinkansen’ – is undergoing

Family planning policies are having a major impact on speeding up the

10 The Future of Retirement It’s time to prepare Part One

The population ‘mega-trend’ and The industrialised world already

7. An Inconvenient Truth, Al Gore, 2006.

The Future of Retirement It’s time to prepare Part One 11

Fig. 2 The global population of over 65s

1950 2010 2050

World population over 65

World population under 14

12 The Future of Retirement It’s time to prepare Part One

Fig. 3 The growing percentage of people living beyond the age

2000 2010 2020 2030 2040 2050

The Future of Retirement It’s time to prepare Part One 13

Source: U.S. Census Bureau, International database

Source: U.S. Census Bureau, International database

11. Building a pensions powerhouse, Global Pensions, 15 October 2008

14 The Future of Retirement It’s time to prepare Chapter

Saving for retirement

Saving for children

12. OECD Private Pensions Outlook 2008

The Future of Retirement It’s time to prepare Part One 15

16 The Future of Retirement It’s time to prepare Chapter

31% of the global survey support efforts to encourage voluntary

Support is particularly high in the UK, Canada and the US – as well as a

Reforms in Brazil have already produced phenomenal increases

Support for working longer was clearly more of an Asian

At 13%, support for social security models funded through

In 2008 the UK’s voluntary savings ratio hit a 50 year low

Support for compulsory savings – often viewed as a form

13. Policy Issues in Insurance, OECD 2004

18 The Future of Retirement It’s time to prepare Part Two

Fig. 7 Options for pension reform

Reduce the value of

The Future of Retirement The Future of Retirement

There is relatively little support

14. Keeping pace with age, Global Pensions, 9 June 2008

The Future of Retirement It’s time to prepare Part Two 19

Fig. 8 What the government should do to support

17% Mandate Compulsory employee pension contributions

13% Raise taxes to pay for better state pensions/social security

23% Increase retirement age and support people to work longer

16% Encourage more private savings through

31% Encourage more private savings through tax relief on savings

20 The Future of Retirement It’s time to prepare Part Two

Chart 8 – Regional differences on how the government

Fig. 9 Regional differences on how the government should respond

Increase retirement age and support people to work longer

The perfect economic storm 7 Case study:

Pensions reform: Asset allocation 50

Retirement Planning where you are 62

The Future of Retirement It’s time to prepare Contents

The Future of Retirement It’s time to prepare Chairman’s Foreword

The Future of Retirement It’s time to prepare Introduction

The Future of Retirement It’s time to prepare Executive Summary

The Future of Retirement It’s time to prepare Executive Summary

The Future of Retirement It’s time to prepare Executive Summary