Insurance solutions for an aging population Consumer Perspectives November 2012 Mark Twigg Executive...

Insurance solutions for an aging populationConsumer Perspectives

November 2012

Mark Twigg Executive Director, Cicero Group

Introduction

• Ageing societies: A demographic time-bomb?

• Generating retirement incomes in future

• At retirement income products and financial advice

2

3

Aegon Retirement Readiness Survey 2012

• Findings based on 9,000 responses from nine countries

• 8,100 current employees• 900 in retirement• Survey work completed

early 2012• Core objective to examine

pensions sustainability and adequacy

Spain

France

UKGerm

any Poland

Swed

en

Hungary

Neth.

4

Aegon Retirement Readiness Survey 2012

• Objective: To provide thought leadership defining the ‘enabler’ role of the insurer in an age of personal responsibility. The insurance industry:

– Allow households to identify new risks and improve risk management

– Enhances peace of mind and promotes financial stability

– Helps to relieve the burden on government social security systems

– Mobilises domestic savings and allocation of capital for use in the wider economy

5

Ageing societies: A demographic time bomb?

6

The world is ageing rapidly

19501955

19601965

19701975

19801985

19901995

20002005

20102015

20202025

20302035

20402045

20502055

20602065

20702075

20802085

20902095

21000

5

10

15

20

25

30

35

40

Under 15sOver 60s

Year

%

Proportion of the world population over 60 and under 14

Source: UN population division

By 2040 there will be 1.8 billion people at or in retirement age

7

Families are having fewer children

1950-1955 1955-1960 1960-1965 1965-1970 1970-1975 1975-1980 1980-1985 1985-1990 1990-1995 1995-2000 2000-2005 2005-20100

1.00

2.00

3.00

4.00

5.00

6.00

4.95 4.89 4.91 4.85

4.45

3.843.59

3.39

3.042.79

2.62 2.52

Children per woman, 1950-2010

Replacement level


These numbers are lower in Europe, and lower still in Eastern Europe

Low birth rates are compounded by net migration.

8

Europe is rapidly ageingOld age dependency ratio (65+ population per 100 15-65 year olds)

Hungary1950: 11.62010: 242050: 43.6

Germany1950: 14.52010: 30.82050: 56.5

Poland1950: 82010: 192050: 47.9

Sweden1950: 15.52010: 282050: 42.3

UK1950: 16.22010: 25.12050: 39.9

Spain1950: 10.92010: 24.92050; 61.9

France1950: 17.32010: 25.92050: 43.4


• As a whole, Europe’s total fertility has fallen from 2.65 in 1950-55 to just 1.53 in 2005-10

• In the same time period life expectancy has risen from 65.6 to 75.3

9

An uncertain future combined with low levels of retirement preparedness

Germany US The Netherlands UK Sweden France Spain Poland Hungary

5.9

5.6 5.55

5.3

5.1 5.15 5

4.8

Source: AEGON retirement Readiness Survey 2012

The AEGON Retirement Readiness Index is based on 6 questions relating to levels of awareness about retirement; understanding of the need to save more; willingness to save more; and current savings behaviours

10

Peace of mind?

11

A new found pessimism surrounding retirement

Hungary 42% 23% 16% 12% 5% 3%

42%

23%

16%

12%

5%

3%

Very Pessimistic Somewhat pessimistic Neither pessimistic nor optimisticSomewhat optimistic Very Optimistic Don't know

Two-thirds of Hungarians are pessimsitic


12

Hungarians are the most pessimistic

Japan

France

German

y

Hungary

Poland

Spain

Swed

en

The N

etherl

ands

United Kingd

omUSA

33%

23% 23%

42%

29%

13%15%

13%

19% 20%

'Very Pessimistic' about retirement


13

People expect to be worse off than their parents in retirement...

Total Sweden USA The Netherlands Poland Spain United Kingdom Germany France Hungary

71%

56%

67%68% 68%

70%

75% 75%

79%

84%


Social equity between the generations is breaking down

14

Generating retirement incomes in future

15

Four pillars of retirement funding

1. State 2. Employer

3. Individual 4. Work

16

Interaction Between the retirement pillars – a balanced approach?

The government should provide through the state pension

Employers should provide through workplace pensions

Individuals should save for themselves

There should be a balanced approach in which individuals, employers and the government all play an equal role

5%

5%

11%

5%

3%

3%

9%

4%

33%

38%

36%

30%

46%

37%

23%

43%

Source: AEGON Retirement Readiness Survey 2012

Hungarians least likely to support personal responsibility

17

Institutional Responses

1. The State

2. The Employer

18

A widespread belief that State Pensions will be less generous

Hungary 3.67% 3.00% 6.56% 16.22% 66.56% 4.00%

4%3%7%

16%

67%

4%

Strongly disagree Somewhat disagree Neither agree or disagreeSomewhat agree Strongly agree Don't know


83% of Hungarians expect a less generous state pension

19

Hungarians have least confident in the state

Japan

France

German

y

Hungary

Poland

Spain

Swed

en

The N

etherl

ands

United Kingd

omUSA

62%

31%

54%

67%

51% 49%

23%

37%

49%

42%

'Strongly agree' that the state pension will decline


20

Employers are still seen as a key piece of the retirement income solution...

Employers should be required to contribute

44%

Employers should be required to make a pension available but not to contribute

10%

Employers should not be required to provide pensions but should provide in-

formation on planning for retirement8%

Employers should provide a range of flex-ible benefits and allow individuals to

choose25%

Nothing – it should be left to individual employees to take care of themselves

4%

Nothing – it should be left to the government to take care of its citizens

8%

Q. What should employers do to help people plan for retirement?


21

A widespread belief that employers will reduce benefits

Strongly disagree Somewhat disagree Neither agree or disagree

Somewhat agree Strongly agree Don't know

7%6%

14%

24%

31%

17%

Hungary


22

Household Responses

3. Work More

4. Save More

23

Will you be likely to keep working after retirement?

Hungary 5% 2% 10% 21% 57% 6%

5%2%

10%

21%

57%

6%


78% of Hungarians think that they will keep work-ing after retirement


24

How will your transition into retirement change?

Hungary 35% 17% 22% 12% 12%

35%

17%

22%

12%12%

Stop working altogether and enter full retirement Have a period of semi-retirement Continue to work in some formKeep working as I currently do Don’t know


25

A phased retirement is increasingly seen as the norm

USA

United Kingdom

The Netherlands

Poland

Spain

Hungary

Germany

Sweden

France

Total

63%

50%

53%

54%

47%

45%

57%

50%

64%

54%

23%

37%

23%

28%

21%

34%

22%

26%

22%

26%

7%

4%

15%

8%

19%

14%

9%

8%

10%

10%

Immediately stop work Change work patterns Continue working

Retired Population

USA

United Kingdom

The Netherlands

Poland

Spain

Hungary

Germany

Sweden

France

Total

18%

22%

24%

26%

32%

35%

35%

35%

45%

30%

51%

55%

44%

54%

24%

39%

45%

44%

37%

44%

22%

14%

11%

12%

36%

12%

11%

8%

7%

15%

Immediately stop work Change work patterns Continue working

Working Age population


26

Opinions remain divided over extending ‘pensionable’ age

Retirement age should increase in line with increases in life expectancy

17%

Retirement age should increase except for those in dangerous jobs

or manual workers19%

Retirement age should increase but the increase should be capped irre-

spective of how much life expectancy improves

12%

Retirement age should remain unchanged. People are already expected to work long enough

47%

Don’t know5%


27

Individual behaviour is not keeping up with rising longevity

France

Poland

UK

US

Canada

Brazil

Mexico

Argentina

Saudi Arabia

UAE

Malaysia

India

China

South Korea

Singapore

Taiwan

Hong Kong

48 50 52 54 56 58 60 62 64 66 68

62

65

65

65

65

65

65

65

60

65

55

60

60

60

62

65

65

62

65

65

66

65

65

65

65

60

60

58

60

60

62

65

65

65

Anticipated retirement age (men)State retirement age (men)

Age (years)Source: HSBC Future of Retirement 2011

28

Widespread belief that personal savings are worth less due to financial crisis

Hungary 2% 3% 6% 24% 61% 4%

2%3%6%

24%

61%

4%


85% think savings have been negatively affected


29

Again, Hungarians are among the most pessimistic

Japan

France

German

y

Hungary

Poland

Spain

Swed

en

The N

etherl

ands

United Kingd

omUSA

43%

37%

62% 61%57%

36%

41%

28%

34%36%

‘Strongly agree’ that personal savings are worth less


30

Likely to plan more for retirement?

Hungary 7% 6% 14% 24% 31% 17%

7%6%

14%

24%

31%

17%



31

What would encourage you to save more?

More ge

nerous t

ax brea

ks

Access

to finan

cial e

ducation

Access

to pro

fessio

nal finan

cial a

dvice

Simpler

inve

stmen

t pro

ducts

Better

and m

ore fre

quent in

formati

on

Better

legal

protec

tion again

st miss

elling

A pay ris

e

None, hav

e alre

ady m

ade s

ufficient p

lans

47%

7%

13% 14%17%

13%

63%

5%

70% of Hungarians agreed that is was now more important to save for their retirement but 63% can’t afford it – fiscal incentives would be the biggest single help according to 47%


32

At retirement income products and financial

advice

33

What does retirement preparedness involve?

Source: HSBC Future of Retirement 2011

Classic model of household

income

34

Income needs increase with age

Onset of passive retirementOnset of active retirement

Retirement aspirations: 66% (63%) would like to travel; 52% (44%) pursue new hobbies*

*Source: AEGON Retirement Readiness Survey 2012

35

What do consumers need from insurers?

• A better awareness of risks and a better value of those risks. “Value of insurance... Increasing prosperity and generally making people more aware of the reality of risks” (Geneva Association, 2012).

• In retirement this applies to three key risks:– Longevity– Inflation– Investment

36

What product features really matter in retirement?

Survivor's benefits Capital protection Inflation-linked personal control over investments

lump-sum protection against inheritance tax

long-term care costs

28%

12%

16%

7%

20%

3%

14%

25%

8%

15%

5%

28%

5%

13%

Global Hungary

‘The Annuity Puzzle’

Frail retirement Under-estimated


37

Clear need for more advice

Hungary 13% 8% 17% 21% 32% 10%

13%

8%

17%

21%

32%

10%



38

Hungarians recognise advice needs more than other countries

Japan

France

German

y

Hungary

Poland

Spain

Swed

en

The N

etherl

ands

United Kingd

omUSA

16%

21%

17%

32%

25%

22%

12% 12%

18%20%

‘Strongly agree’ that financial crisis has created need for financial advice


39

Where would you go for advice?

10%

28%

5% 5%

9%

5%3%

2%

7%

5%3%

18%


40

Advice needs identified

Hungary 47% 50% 18% 41% 43% 14% 25% 10% 22%

47%50%

18%

41%43%

14%

25%

10%

22%

Making recommendations on long-term investment risk and asset allocation Calculating savings and investment goalsHelping me to identify my immediate financial priorities Recommending retirement productsRecommending protection products Providing tax planning on savings and investmentsProviding comprehensive financial planning Providing inheritance / estate planningHelping me to manage my debts


41

What do consumers want from insurers?

Hungary 17% 37% 31% 23% 30% 27%

17%

37%

31%

23%

30%27%

Socially responsible investmentsGuaranteed return on investmentsLowest fees and management chargesA company that frequently contacts me on status updates and recommendationsComprehensive advice about how to planA one-stop shop for investment and insurance needs


42

Conclusion• Demography and financial crisis have created ‘a perfect storm’ –

reversals in living standards are now widely anticipated• The four pillars of retirement are shifting – failure to promote

pensions will result in likely over-reliance on ‘make-do’ or ‘plan b’ options

• Personal responsibility will increase but through which products and how is not clear – financial risks are complex and advice is lacking

• “Insurance should be perceived not only as a protection mechanism, but more importantly as a partnership that allows individuals and businesses to spread their wings where they otherwise might not have dared to go” – (Geneva Association, 2012)

Insurance solutions for an aging population Consumer Perspectives November 2012 Mark Twigg Executive...

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