Perfect storm for pensions on the horizon

Benefits Canada
June 10, 2009
Jody White

Retirement is under threat by a confluence of factors which have many people focused on the short-term, reveals a recent survey.

HSBC Insurance’s fifth annual Future of Retirement survey of 15,000 people in 15 countries predicts a perfect storm of demographic, individual and financial elements that is poised to derail retirement plans unless people take action now.

“A perfect storm is confronting pension planning, created by an aging population, falling pension funds values, a drop in state and employer contributions and an economic downturn that is forcing people to make tough financial choices,” says Stephen Green, group chair of HSBC.

According to HSBC, criteria for this situation includes
• short-term survival strategies in the midst of a recession that create a serious long-term pension “downturn deficit”;
• a lack of pension planning in the face of recognized longevity issues;
• poor levels of financial understanding, education and access to advice; and
• a concern for material possessions over long-term financial security.

Preparedness gap
The survey identifies a “preparedness gap” in people’s pension planning, with nearly nine out of 10 respondents not feeling fully prepared for their retirement, while 86% do not know what income they will receive in retirement. Just over one-quarter (27%) feel they fully understand their long-term finances, while 43% have undertaken some planning for later in life. Thirteen percent of respondents feel fully prepared for their retirement and 14% have done no retirement planning at all.

“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,” says Green. “The cost of procrastination is likely to be high.”

Advice gap
The survey also reveals a parallel “advice gap” linking a lack of preparedness to insufficient financial education and guidance.

According to the data, 43% of respondents have no financial education, while 29% feel ‘fairly’ unprepared for their retirement, and 47% have never had professional financial advice

HSBC points out that as a result of the economic downturn
• 92% of people have changed some element of their finances;
• only 19% will now retire as planned;
• 17% are reducing retirement savings or have stopped saving for retirement altogether;
• 18% have used savings to pay off debt; and
• 9% expect to delay their retirement

According to Mark Twigg, director at Cicero Consulting, a financial services consultancy that undertook the survey for HSBC Insurance, the survey reveals the lack of understanding people have around their long-term retirement needs.

“They are less educated or aware when trying to understand [retirement] needs and to act on them than with their short-term requirements,” he says. “As the economic perfect storm threatens it is important that people are encouraged to understand long-term risks and to manage them effectively. While people are taking more responsibility for themselves, there is also a definite role for financial institutions to continue, and to build on, their work to educate and inform.”

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