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June 01, 2016 at 08:41 PM
Retirement preparedness around the world has only slightly improved since 2012 as investors in some areas have increased savings while others reported a decreasing sense of personal responsibility for saving, according to a report by Aegon.
Longevity exacerbates these effects, as the period of time investors need to save for and the number of people covered by social programs increase.
“Rapid demographic change means that it is inevitable that governments will continue to withdraw from providing the sort of safety net in retirement that they were able to for previous generations,” Alex Wynaendts, CEO of Aegon, wrote in the report. He noted that “stagnating economic growth in much of the world” has made it more difficult for less highly paid people, like women and young workers, to begin saving for retirement.
Aegon has been conducting its Retirement Readiness Survey, including the Retirement Readiness Index, since 2012. The 2016 report, “A Retirement Wake-Up Call,” includes a five-year trend analysis of the nine countries from the original report, as well as new findings from the entire 15-country sample. The 2016 report includes responses collected in February from 14,400 employees and 1,600 retirees in Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey, the United Kingdom and the United States.
The recommendations to improve retirement preparedness Aegon makes in the report include broad cultural shifts like encouraging habitual, lifelong saving and promoting healthy aging, as well as plan design and policy changes like designing more inclusive workplace plans and facilitating flexible retirements.
In the nine original countries, the retirement readiness index has increased from 5.2 in 2012 to 5.5. A score between 6 and 7.9 shows a “medium” or moderate level of preparedness. Of the original nine, the United States showed the greatest increase in preparedness, from 5.6 to 6.7 on the index, “reflecting that people are more likely to feel personally responsible for their retirement planning,” according to the report.
Although respondents showed improvements in behaviors like understanding and awareness, planning and progress toward their income goals, the limited increase in the index is partly due to respondents’ lack of personal responsibility in saving. That score fell by 2.8%.
Expanding the index to include the six new countries (Australia, Brazil, Canada, China, India and Turkey), the index fell from 5.9 in 2015 to 5.8.
Short-term financial shocks in the countries that reported a decline are partly to blame, the report found. Improvements in the U.S. and U.K. are “likely not a coincidence,” according to the report, as “widespread access to personal pension and retirement products” gives investors more control over their retirement savings.
4 Solutions for Individuals, Policymakers
Most respondents agreed that funding retirement was a shared responsibility between governments providing social security systems and individuals saving for retirement. Although favor skewed slightly toward governments shouldering more of the responsibility, Aegon acknowledged that increased longevity around the world means governments and defined benefit sponsors alike are struggling to maintain their plans’ sustainability.
“Maintaining this delicate and harmonious balance requires shared cooperation among governments, employers and individuals,” according to the report.
Aegon identified four areas where policymakers, plan sponsors and individuals could step up efforts to improve retirement preparedness.
Workplace retirement plans. Policymakers and plan sponsors could do more to improve access and participation in workplace retirement plans, the report noted. Aegon suggested that policymakers should increase incentives and remove barriers to implementing plans and making them available to all workers.
