A “perfect storm” of demographic, individual and financial elements is poised to derail people’s retirement plans unless they prepare for it properly now, a global survey from HSBC Insurance has revealed.
The fifth annual Future of Retirement study, It’s Time to Prepare, shows that people’s short-term survival strategies in the midst of recession are creating a serious long-term pensions “downturn deficit”. There is a continuing lack of pensions planning, even though people are aware that they are likely to live longer, which is exacerbated by poor levels of financial understanding, education and access to advice, as people are more concerned with protecting their possessions in the short-term than ensuring a financially secure retirement.
The consequence of these combined factors is that many people will struggle to make ends meet when they come to retire, unless they urgently review their priorities and planning.
Commenting on the study, HSBC Malta CEO Alan Richards said: “With an ageing population, increased life expectancy and declining fertility rates, retirement planning is becoming a major issue in Malta as in the rest of the world.”
Globally, the survey also reveals that people want governments to help them help themselves through enforced savings. Some might see compulsory savings as another form of taxation but the difference is that individuals control them.
The HSBC Future of Retirement survey also shows people’s ever changing attitudes to retirement lifestyles, taking into consideration their increased ability to work and overall improved health prospects.
For example, the vast majority of Maltese people over 60 years old describe themselves as being in fair, good or very good health and over 60 per cent want to travel when they retire – so planning for it is necessary, whatever your retirement objectives.
Mr Richards also emphasised that the global nature of the survey enabled HSBC in Malta to put local issues into context and helped the organisation better understand the needs of its clients and the challenges they face in preparing for later life.
HSBC Group Chairman Stephen Green said: “A perfect storm is confronting pensions planning created by an ageing population, falling pension funds values, a drop in state and employer contributions and an economic downturn which is forcing people to make tough financial choices.”
It’s Time to Prepare has identified a “preparedness gap” in people’s pensions planning across the world, with nearly nine out of 10 people not feeling fully prepared for their retirement. The Future of Retirement survey, which questioned 15,000 people in 15 countries, making it the largest study of its kind in the world, reveals:
• Only 13 per cent of respondents feel fully prepared for their retirement.
• 86 per cent do not know what income they will receive when they retire.
• Only a quarter (27 per cent) feel they fully understand their long-term finances.
• Almost half (43 per cent) have undertaken some planning for later life, but still remain unclear as to what their retirement income will be.
• 14 per cent have done no retirement planning at all.
Mr Green added: “The ‘preparedness gap’ reveals that families need greater support and guidance to effectively handle their finances, not simply in schools and colleges but through ‘trusted advisers’ providing professional financial guidance.
“If people prepare adequately for the long-term, an extended later life can present a golden opportunity for many – but now is the time for people to seriously consider boosting their pension contributions to improve their prospects of a comfortable retirement. The cost of procrastination is likely to be high.”
It’s Time to Prepare also reveals a parallel “advice gap” linking a lack of preparedness to insufficient financial education and guidance:
• 43 per cent of respondents have never had any form of financial education.
• 29 per cent also feel “fairly” unprepared for their retirement.
• Almost half (47 per cent) have never had any form of professional financial advice.
Despite global economic uncertainty, only six per cent intend to take out income protection insurance in the next 12 months compared to 16 per cent insuring their home.
The Future of Retirement survey shows that, as a result of the economic downturn:
• 92 per cent of people have changed some element of their finances.
• Only 19 per cent will now retire as planned.
• 17 per cent are reducing retirement savings or stopping saving for retirement altogether.
• 18 per cent have used savings to pay off debts.
• Nine per cent expect to delay their retirement.
