Retirement Unpreparedness Is a Global Problem

Lack of retirement readiness is an emerging global crisis confronting governments, employers and individuals, a new study indicates.

Of the 12,000 individuals polled in 12 countries, only 12% are optimistic that they will have sufficient financial resources in retirement. Only 20% claim to have any understanding of financial matters pertaining to effective retirement planning.  

According to “The Changing Face of Retirement: the Aegon Retirement Readiness Survey 2013,” conducted by Aegon, the Transamerica Center for Retirement Studies and Cicero Consulting, the Aegon Retirement Readiness Index (ARRI) was developed to gauge retirement preparedness on six key measures: 1) sense of personal responsibility for income in retirement; 2) level of awareness of need to plan for retirement; 3) financial capability/understanding of financial matters regarding retirement; 4) the stage of development of retirement plans; 5) financial preparedness for retirement; and 6) income replacement assessing the level of projected income replacement.    

For the 12 countries polled, the ARRI yielded a low composite total score of 4.89 on a scale from 0 to 10, which is considered a “low” level of retirement readiness. Scores for all 12 countries fell in a relatively narrow range with Germany highest at 5.48 and Japan lowest at 4.30. Catherine Collinson, president, Transamerica Center for Retirement Studies, noted during a press call that the 2013 scores are lower for all countries than the 2012 scores, indicating a global retirement crisis. 

Nearly two-thirds (65%) of survey respondents believe that future generations will be worse off in retirement than current retirees. This expectation was highest in France and Hungary at 80% and lowest in urban China at 20%.    

The global financial crisis has led respondents to expect reductions in benefits. Nearly two out of three employees (64%) expect that their government retirement benefits will be less valuable due to government cutbacks. That expectation is highest in the Netherlands (72%) and lowest in Sweden (41%).  

A large portion of employees (44%) also expect that their employer or pension fund will reduce workplace pension benefits--the highest percent in the Netherlands (55%) and lowest in Sweden (26%).    

Many younger employees expect it will be necessary during their own retirement to also provide financial support to aging family members. Three in 10 employees (30%) between the ages of 18 and 24 expect they will have to provide financial support to aging parents, compared to 16% of current employees between ages 35 and 44, and only 8% between ages 55 and 64.

“The combination of fewer government and employer retirement benefits, rising longevity and inadequate saving for retirement threatens to ‘squeeze’ younger generations who face the prospect of also having to support their families, including aging parents, in retirement,” said Collinson. “This squeeze further illustrates the urgent need to find the right balance among the roles and responsibilities of governments, employers, and individuals and families in providing for retirement.”  

An obvious and practical solution for bridging the retirement savings gap is to enable current employees to delay retirement and continue working beyond traditional retirement age. The majority of employees (62%) expect to work longer due to the global financial crisis, with the response highest in the Netherlands and France (68%) and lowest in China (46%).     

The fact remains that delaying retirement is not necessarily a reliable option for many. Of the retirees surveyed, nearly half (49%) retired sooner than expected. Among them, the majority retired early for reasons such as health issues (42%) or job loss (23%). Only 7% retired sooner because they had saved enough.     

“Delaying retirement is an important means of bridging a savings shortfall,” said Collinson. “However, life’s unforeseen circumstances can derail the best of plans. It’s critical to have a backup plan if retirement arrives sooner than expected.”

The survey found that many employees (43%) would like to transition gradually into retirement by changing work patterns (for example by working part-time, or with less demanding responsibilities). Employers, however, are ill-prepared to accommodate a phased retirement option. Only 21% of employees indicate their employer offers the option to move from full-time to part-time work. The response was highest in China (32%) and lowest in Hungary (15%). And, only 15% indicate their employers would offer more suitable, less demanding work. Finally, only 15% state that their employer offers flexible arrangements to work beyond the normal retirement age.    

The retirement-related risks faced by employees are increased by widespread financial illiteracy, with only 20% of respondents saying they are "very able" to understand financial matters related to retirement planning. Only 9% of people say their personal retirement planning process is “very well developed,” and only 9% have a written plan for retirement. Thirty-nine percent do not know if they are on course to achieve their retirement income needs.    

The global financial crisis has led a growing number of people to resist taking investment risk in their retirement portfolios. More than half of respondents (53%) agree that, as a result of the financial crisis, they “will take fewer risks when it comes to saving for retirement,” and 42% agree that they are “looking for investment products which offer greater protection against volatile markets.”    

Respondents are interested in products and services that could help them to mitigate risks, including both investment and protection products, such as long-term care insurance (52% are very or extremely interested) and products to provide a guaranteed income in retirement (58% are very or extremely interested).    

The survey report is here.