From the January 2008 issue of Research Magazine • Subscribe!

Global Insight

Research: Tell us about the international retirement survey that The Hartford did.Zlatkus: This is the second year we've done it. We asked 6,500 people aged 45 and older in five countries -- the U.K., the United States, Germany, Japan and South Korea -- who are in charge of making the financial decisions in their households how they felt about retirement, what their dreams were and so on. As it turned out, across the globe, most have a fairly clear vision of retirement. Many want to relax and travel, others want to work with charitable causes or spend more time with grandchildren, but one thing that was clear is that while the specific aspirations differ, people are overwhelmingly worried that they won't have enough money to realize those dreams.

Should they be worried?On average, people said they'd done too little to prepare themselves financially. We see this to be true. In fact, we saw an increase in the lack of confidence in this year's results. What we took away is that there's a clear need for financial education and really improved financial tools.

That sounds like an opportunity for the world's advisors.Certainly at The Hartford, we see this as an enormous opportunity. Variable annuities with guaranteed income are an important way to get people to take that first step toward preparing for retirement and then get a good night's sleep. Even then, people have to feel confident enough to take that step, and so we're committed to making sure they get tailored, neutral advice and planning tools. In the United States, for example, we have 20 retirement advice consultants who don't talk about The Hartford or even specific products; they're just there to help educate U.S. citizens on how to plan for retirement, how much money they'll need, how to think about that and what kind of assets they'll need. That's being perceived very well; we're working to take these concepts global.Is there a need for that in places like Europe, where there's such an extensive safety net?Even in Europe, between government and pension plans, there's just not going to be enough to cover retirees' needs. More people are going to have to save because worker/retiree ratios are shifting as birthrates decline and longevity increases. The projections for South Korea, for example, are that by 2050, there will be only a 0.9 worker for every retiree. Even in European countries, we're seeing that decline.

So you're exporting the retirement techniques developed here?Absolutely. That's what we've done: taken our expertise and service -- particularly in variable annuities -- and exported them into Japan, for example, where in a few short years we've grown to $37 billion in assets under management. We're the No. 1 underwriter in terms of AUM in that country. They clearly see the need there. There's over $6.5 trillion in Japanese personal financial assets that are either in cash or low-yield assets paying around 0.5 percent. We all know there's a very high savings rate in Japan, but the fear there is that the rates they're earning on those savings are just not going to keep up with inflation. We give them that peace of mind.

How do retirement needs vary in different countries?It's hard when I get asked what's different about Japan or the U.K. or Germany because I see more similarities than differences. People in these countries are looking at retirement as an exciting time to relax and enjoy life, but people in these countries are also very worried that they're not going to have enough money. In general, there's high awareness of the issue. I think that's a good thing because 20 years ago... people were relying more on their government. Ask people today who's ultimately responsible for their retirement, and they'll say the No. 1 person is themselves, but they don't know where to turn from there. We're working with the financial advisor community in banks and securities firms to educate them, and we think we've got the right approach.

Are there a lot of variations in national retirement incentives?Everyone seems to understand in all governments that they need citizens to save more. In the U.K., there's been an enormous pension reform that allows citizens to save up to ?215,000 (close to $450,000) tax-free annually. There are some caps in terms of the maximum amount in their overall pension plan, but that represents tremendous potential for people to save. We think it's a fabulous law; the government really said it was going to incent people to save. And what's the next step? People who are hearing about the law can go to an advisor and get help understanding how it applies to them.

What can advisors learn (or teach their clients) from the way other countries do things?Look at Japan, for example. Their citizens are extremely responsible and save a lot of their money as a percentage of nominal GDP. But what they can learn from other countries (and what we can learn from them) is that having assets in cash is not going to keep up with inflation. We understand why they feel that way, since their market was down for many, many years and interest rates were at near-zero levels, but you still need to be invested in a basket of securities that gives much better long-term returns. You need to beat inflation, or else even if you save a lot, you still won't have enough to retire. So the more risk-averse investor will need help from banks and securities firms to put that together, wherever he or she lives.

U.S. investors are a bit more comfortable with our abilities and are more heavily invested in equities, but look at the volatility in the market today. It's real, and so products like ours provide principal protection and often lifetime security -- peace of mind.

Where do we go from here, globally?The world is aging. The longest life expectancy is 85.5; Japanese women have held that title for the last 21 years. People are living longer and longer, and that's a good thing. Another thing is that birthrates are declining. We're seeing that a country really needs a birthrate of 2.1 to have a population that's growing. Many of these countries we surveyed have birthrates much lower than that, and the indications are that they'll decline much further.

And beyond demographics?There's more pressure to provide for retirees and higher awareness of that fact. I keep hearing from people in the United States, for example, that they can't rely on Social Security and can't rely on their companies' defined benefit plans, so they need to save.

Overseas and abroad, is the very notion of retirement changing?Probably people have the same vision, in many cases, as our parents did: traveling, enjoying themselves, pursuing individual interests. What's different is the amount of time in retirement is extending. If your life expectancy is 85 instead of 75, you have 10 more years [for which] you need to save in order to fund that time. Add in the fact that there will be less people working to provide that funding, and that's where we'll see strains on government systems. I really believe the retirement market will be the single biggest driver of our business around the world for years to come.


Robert Scott Martin is a New York-based contributing editor of Research

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