- Despite the improving economy people still have little confidence that they will be able to retire with a lifestyle they consider comfortable.
- There is a strong need for people to save for their retirement. This is underlined by the Aegon Retirement Readiness Index score of just 5.8 out of 10.
- People expect to work longer and the report advocates that flexibility will become the new model for retirement. Only 32% of employees now expect to stop work completely at retirement age.
These are the main findings of Aegon's third Retirement Readiness survey, an investigation in 15 countries, from China to the US, into what's on people's minds when they think about retirement. The 2014 survey, published today, shows that people have clear concerns about their retirement. They do not feel sufficiently prepared and, worryingly, they are not acting on it.
Positive aspirations for retirements
People continue to hold positive aspirations for retirement, with many associating retirement with leisure (46%) and a sense of freedom (41%). But one-third (34%) of employees are pessimistic about having enough money to live on in retirement, and just 19% are "very" or "extremely" confident that they will be able to retire with a lifestyle they consider comfortable. This confidence is especially low in Europe, with the figure in France just 6% and in Poland 4%.
Only one in six (18%) expects to be better off in retirement when compared to current retirees. Particularly in Europe and North America people fear that the sort of retirement currently being enjoyed by their grandparents or parents won't be available to future generations. In the future, retirement will come to be defined very differently. In particular, it will require a larger role for paid employment as the notion of retirement becomes more flexible.
The Aegon Retirement Readiness Index captures the level of retirement preparedness in a comprehensive manner. The Index has improved versus last year, but the overall Index score remains just below 6 out of 10. This score shows that overall preparedness is low and people need to do much more to become ready for retirement.
A key message from this year's survey is that there is a strong need for people to plan for retirement. The best way is to start early and save regularly. While 34% of "habitual savers" achieved a high Index score, 82% of "non-savers" found themselves with a low Index score. The priority must be to encourage more people to start long-term saving, and to save regularly as part of a comprehensive retirement strategy.
Actions can be taken to simplify saving
The Aegon report recommends that the solution lies in making retirement planning easier. Financial constraints on households continue to explain why some people are not saving enough for retirement. Only 28% of employees say they have enough money to invest for their retirement. Faced with these financial realities, governments, employers and pension providers have a shared responsibility to help people plan for their own retirement by making the process as easy as possible and providing the right (tax) incentives to save.
Employers have a dual role to play – in providing both financial support in the form of workplace pensions and other workplace savings products, as well as services such as online retirement planning tools or workplace financial advice. Overall, 63% of employees say that they find the prospect of being automatically enrolled into a workplace pension appealing.
The financial services industry can also play a role, given that 21% of respondents say that they would save more if products were simpler and easier to understand.
Transition into retirement expected
A third key message from the survey is that flexibility will become the new model for retirement. The Aegon report advocates to embrace active aging and working longer. Many current employees already expect to have some kind of phased transition into retirement, with 29% claiming that they will change the way they work once they enter retirement by working part-time before they give up work altogether, and 17% planning to move to part-time work for the duration of their retirement. Only 32% of employees now expect to stop work completely at retirement age.
It is clear from the findings that employers will need to do more to support flexible retirement. Currently, only 23% allow their employees to go first into phased, part-time retirement and only 12% offer retraining. Furthermore, 52% of employees say their employers currently don't provide enough information or support to help employees transition into retirement.
