Thursday, July 10, 2014
Indians positive about retirement years
Most respondents think they will be well off in the later years, but do not have written plans
Indians have the most positive outlook with regard to expectations for the economy and their own financial situation in the next 12 months, according to a survey, AEGON Retirement Readiness Survey 2014, by AEGON Religare Life Insurance Co. Ltd. The global survey included 16,000-plus respondents (above 18 years of age) in 15 countries, including Brazil, India and Turkey for the first time. Pre-retirees were 90% of respondents, and 10% were retired. The Indian survey included 900 employed and 100 retired people.
Almost half of the respondents, 48%, said, they expected things to improve. But at the same time, a good 34% said they expected the economic condition to remain the same. The trend for personal financial situation was similar: 57% felt things are going to improve, and 33% felt they won’t change.
But what could be a big hurdle to a secure retirement is that even though most people think they will be suitably well off, they do not have concrete plans to this end. The numbers clearly point out this grim reality: only a small 19% have a written retirement plan, while 61% have a plan but it’s not written down. Worse off are the others, 18%, who said they don’t have a plan at all.
In terms of the instruments used to invest for retirement, Indians (both workers and those already fully retired), most people said they prefer fixed deposits (59%) and life insurance (54%). The other popular instruments include provident funds (47%), gold (41%), property (40%), pension funds (National Pension System) (37%), and mutual funds (35%).
With regards to the type of pension plan, it’s not surprising that twice as many Indians chose a “lower return, guaranteed” pension over one that offered higher returns but more uncertainty (62% versus 31%). That’s something financial product sellers should keep in mind.
A big change, however, is that the traditional idea of a “cliff edge” retirement, whereby people reach a certain age and stop paid work, is something that most workers no longer expect. A majority expect some sort of transition, either by working part-time or on temporary contracts before eventually giving up paid work (35%) or by changing work and continuing in some capacity throughout retirement (23%). A similar number of respondents said they will immediately stop working on retirement (18%) and those who will continue working (19%) as they currently do.
Pension coverage should be widened through automatic enrolment. Automatically enrolling employees into workplace pension system could play a significant role here.
Having simple savings and investments that help people manage long-term finances should be a key consideration in this process. Appropriate incentives through the tax system will also help.
In tandem with these steps, it’s imperative that users develop a broader understanding of their financial planning needs. Indians require much more knowledge about retirement planning to be able to keep up-to-date with products and investment decisions in a fast-changing market place in the coming years. Building general levels of financial awareness, awareness about retirement planning choices, the requirement to consider annuities and other income generating options in retirement should be a major priority for policymakers.