Aegon Retirement Readiness Survey 2013

The Aegon Retirement Readiness Index (ARRI), which measures retirement preparedness on six key measures, yielded a low composite total ARRI score of 4.89 on a scale from 0 to 10, and a relatively narrow range of scores across countries.

Germany enjoyed the highest score of 5.48, which is nonetheless only a medium level of retirement readiness. At 4.30, Japan's Index score was the lowest.

The 2013 scores show a decline from those in 2012. The total ARRI score dropped from 5.19 out of 10 to 4.89, with all 10 countries surveyed in 2012 registering a decline. Although in some countries there are now some signs of recovery from the economic crisis, the change in ARRI scores across the board was negative.

Nearly two-thirds (64%) of respondents believe that future generations will be worse off in retirement than current retirees. The global financial crisis has led employees to expect reductions in benefits.

Nearly two out of three employees (64%) expect that their government retirement benefits will be less valuable due to government cutbacks. That expectation is highest in the Netherlands (72%) and lowest in Sweden (41%).

A large portion of employees (44%) also expect their employer or pension fund will reduce workplace pension benefits. Expectations for this are also highest in the Netherlands (55%) and lowest in Sweden (26%).

When they retire, many employees, particularly the younger generation also expect to provide financial support to family members. Three in ten (30%) employees between the ages of 18 and 24 expect that they will have to provide financial support to their aging parents compared to 16% of employees between 35 and 44 and only 8% between 55 and 64.

The combination of rising longevity and inadequate saving for retirement is threatening to 'squeeze' younger generations who face having to support older generations in retirement, yet face the prospect of reduced retirement benefits from which to draw upon. This retirement squeeze illustrates the urgent need to find the right balance among the roles and responsibilities of governments, employers, and individuals in providing for retirement.

An obvious and practical solution for bridging a savings gap is to work longer. The majority of employees (62%) expect to work longer due to the global financial crisis, with the response highest in the Netherlands and France (68%) and lowest in China (46%). Yet this solution is not straightforward and may be unrealistic for many.

Of the retirees surveyed, nearly half (49%) retired sooner than expected. Among them, the majority retired early for negative reasons, such as health issues (42%) or job loss (23%). Only 7% retired sooner because they had saved enough.

Delaying retirement in order to save more for retirement (if possible at all) would appear to be a high risk strategy. Although the majority (57%) of current retirees continued to work in their full capacity until they retired, this survey shows that many current employees (43%) would like to transition gradually into retirement by changing work patterns (for example by working part-time, or with less demanding responsibilities).

Of the retirees surveyed, fewer then one in ten (9%) retired later than expected. Among them, many did so because they enjoyed their work and/or wanted to stay active. It is unclear, however, whether employers are willing to accommodate such a transition into retirement. Only 21% of employees indicate their employer offers the option to move from full-time to part-time work. The response was highest in China (32%) and lowest in Hungary (15%). And, only 15% indicate their employers would offer more suitable, less demanding work.

Finally, only 15% state that their employer offers flexible arrangements to work beyond the normal retirement age. Government and employers can help employees achieve retirement readiness while retaining valuable talent by communicating with older employees their available options for transitioning into retirement and facilitating longer working careers through phase a retirement and other programs. In addition, it is essential that employees have a backup plan to provide financial support for themselves and their families in case of the very real possibility that their employment ends earlier than planned.

The retirement-related risks faced by employees are increased by widespread financial illiteracy, with only 20% of respondents saying they are 'very able' to understand financial matters related to retirement planning.

On other key measures the survey found that only 9% of people say their personal retirement planning process is 'very well developed,' only 9% have a written plan for retirement, and 39% do not know if they are on course to achieve their retirement income needs.

Equipping individuals with the right toolkit to set retirement goals and make informed decisions on achieving these goals is critical. Retirement readiness is more than just saving and investing; it involves setting goals about lifestyle, income needs, and family support, as well as charting a clear path for achieving them. Employers can play a greater role in offering retirement preparation services to their employees.

The global financial crisis has caused people to be wary of taking on risks in their retirement savings. More than half of respondents (53%) agree that, as a result of the financial crisis, they 'will take fewer risks when it comes to saving for retirement,' and 42% agree that they are 'looking for investment products which offer greater protection against volatile markets'.

Respondents are interested in products and services that could help them to mitigate risks. These included both investment and protection products, such as long-term care insurance (52% are very or extremely interested) and products to provide a guaranteed income in retirement (58% are very or extremely interested). Providers need to meet the needs of future retirees for protection by creating innovative products and services.

Recent changes to retirement systems herald an age of greater personal financial responsibility, yet individuals cannot address these new risks alone. Employers and governments must continue to play an important but perhaps different role; evolving toward becoming 'enablers' (helping people to prepare for retirement) rather than purely 'providers' (of retirement benefits). Providers also have an important role to play.

Although retirement systems vary by country, the shift in responsibility for a secure retirement to the individual is consistent among the countries surveyed. Similarly, individuals' lack of adequate preparation for retirement was found across the globe.

Governments have a significant role in increasing individuals' awareness of this shift in responsibility and of the amount and nature of the government benefits on which the individual can rely in retirement.

In addition, governments and employers can facilitate the offering of tools and information to educate employees of all ages of the need to save, how to save effectively for major life events and also how to transition those savings into a secure retirement.

Increased longevity has resulted in the likelihood of multiple generations of family members in retirement whose financial security is compromised by cuts in government benefits and the economic downturn.

The 'squeezed' generation that is trying to save for retirement is increasingly called upon to support parents and grandparents in retirement while also supporting adult children who may still depend on parental support given the depressed job market. This phenomenon is redefining the way different generations of family members care for and support each other financially.

Governments, employers and individuals must acknowledge and facilitate efforts to address inter-generational burdens on the 'squeezed generation.'

Governments must encourage the use of private sector products and ser vices to address these burdens, such as long-term care and supplemental health insurance. Employers can provide or make available retirement planning tools and education to help individuals anticipate and plan to cover inter-generational burdens.

Increased longevity has resulted in the likelihood of multiple generations of family members in retirement whose financial security is compromised by cuts in government benefits and the economic downturn.

The 'squeezed' generation that is trying to save for retirement is increasingly called upon to support parents and grandparents in retirement while also supporting adult children who may still depend on parental support given the depressed job market. This phenomenon is redefining the way different generations of family members care for and support each other financially.

Governments, employers and individuals must acknowledge and facilitate efforts to address inter-generational burdens on the 'squeezed generation.'

Governments must encourage the use of private sector products and ser vices to address these burdens, such as long-term care and supplemental health insurance. Employers can provide or make available retirement planning tools and education to help individuals anticipate and plan to cover inter-generational burdens.

Governments and employers can help employees by enabling longer working careers, and providing options for phased retirement and explaining what these are.

Employees should also have a backup plan if forced into retirement sooner than expected. Governments and employers can increase awareness of the need for a backup plan and facilitate the offering of products such as disability and life insurance which are designed to provide a continued source of income to families in the event of a family member's death or disability prior to the planned retirement and accumulation of sufficient savings.

Individuals are increasingly aware that they will need to bear some personal responsibility for their retirement; however, the amount and complexity of information can be overwhelming to individuals and often results in a lack of action. Programs designed to address this inertia, such as automatic enrollment into employer retirement plans, can help ensure that employees are automatically covered by their employer's retirement plan. However, retirement readiness cannot be achieved by saving and investing alone; it requires planning for lifestyles, basic needs, and expectations of providing for or receiving support from family.

Governments have a responsibility to clearly communicate the expected government benefits. They must guide individuals to the tools and information to help individuals start saving throughout their careers to supplement the government benefits. Employers can serve as a one-stop source of information, tools and supplemental products to help their employees develop their own retirement plan and transition into retirement. Governments can facilitate and encourage the employer's role in providing or making available retirement planning tools and information to its employees through reduced regulatory burdens, safeguards from liability and tax incentives.

Providing retirement solutions and advice that help individuals de-risk their retirement can help avoid losses or erosion due to inflation. Financial products and plans may also help individuals in developing and financing a backup plan in the event they leave the workforce prior to their expected retirement date. However, in order to grow savings into something adequate for retirement some controlled risk may be necessary.