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Insurance solutions for an aging population Consumer Perspectives November 2012

Insurance solutions for an aging population Consumer 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.

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Insurance solutions for an aging population Consumer Perspectives November 2012

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  1. Insurance solutions for an aging population Consumer Perspectives November 2012 Mark Twigg Executive Director, Cicero Group

  2. Introduction • Ageing societies: A demographic time-bomb? • Generating retirement incomes in future • At retirement income products and financial advice

  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 Sweden Neth. UK Poland Germany France Hungary Spain

  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 By 2040 there will be 1.8 billion people at or in retirement age Proportion of the world population over 60 and under 14 Source: UN population division

  7. Families are having fewer children These numbers are lower in Europe, and lower still in Eastern Europe Low birth rates are compounded by net migration. Replacement level Source: UN population division

  8. Europe is rapidly ageing Old age dependency ratio (65+ population per 100 15-65 year olds) • 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 UK 1950: 16.2 2010: 25.1 2050: 39.9 Sweden 1950: 15.5 2010: 28 2050: 42.3 Poland 1950: 8 2010: 19 2050: 47.9 Hungary 1950: 11.6 2010: 24 2050: 43.6 Germany 1950: 14.5 2010: 30.8 2050: 56.5 France 1950: 17.3 2010: 25.9 2050: 43.4 Spain 1950: 10.9 2010: 24.9 2050; 61.9 Source: UN population division

  9. An uncertain future combined with low levels of retirement preparedness 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 Source: AEGON retirement Readiness Survey 2012

  10. Peace of mind?

  11. A new found pessimism surrounding retirement Two-thirds of Hungarians are pessimsitic Source: AEGON retirement Readiness Survey 2012

  12. Hungarians are the most pessimistic Source: AEGON retirement Readiness Survey 2012

  13. People expect to be worse off than their parents in retirement... Social equity between the generations is breaking down Source: AEGON retirement Readiness Survey 2012

  14. Generating retirement incomes in future

  15. Four pillars of retirement funding

  16. Interaction Between the retirement pillars – a balanced approach? Hungarians least likely to support personal responsibility Source: AEGON Retirement Readiness Survey 2012

  17. Institutional Responses • The State • The Employer

  18. A widespread belief that State Pensions will be less generous 83% of Hungarians expect a less generous state pension Source: AEGON Retirement Readiness Survey 2012

  19. Hungarians have least confident in the state Source: AEGON Retirement Readiness Survey 2012

  20. Employers are still seen as a key piece of the retirement income solution... Q. What should employers do to help people plan for retirement? Source: AEGON Retirement Readiness Survey 2012

  21. A widespread belief that employers will reduce benefits Source: AEGON Retirement Readiness Survey 2012

  22. Household Responses 3. Work More 4. Save More

  23. Will you be likely to keep working after retirement? Source: AEGON Retirement Readiness Survey 2012

  24. How will your transition into retirement change? Source: AEGON Retirement Readiness Survey 2012

  25. A phased retirement is increasingly seen as the norm Retired Population Working Age population Source: AEGON Retirement Readiness Survey 2012

  26. Opinions remain divided over extending ‘pensionable’ age Source: AEGON retirement Readiness Survey 2012

  27. Individual behaviour is not keeping up with rising longevity Source: HSBC Future of Retirement 2011

  28. Widespread belief that personal savings are worth less due to financial crisis 85% think savings have been negatively affected Source: AEGON Retirement Readiness Survey 2012

  29. Again, Hungarians are among the most pessimistic Source: AEGON Retirement Readiness Survey 2012

  30. Likely to plan more for retirement? Source: AEGON Retirement Readiness Survey 2012

  31. What would encourage you to save more? 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% Source: AEGON Retirement Readiness Survey 2012

  32. At retirement income products and financial advice

  33. What does retirement preparedness involve? Classic model of household income Source: HSBC Future of Retirement 2011

  34. Income needs increase with age Retirement aspirations: 66% (63%) would like to travel; 52% (44%) pursue new hobbies* Onset of active retirement Onset of passive retirement *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? Frail retirement Under-estimated ‘The Annuity Puzzle’ Source: AEGON Retirement Readiness Survey 2012

  37. Clear need for more advice Source: AEGON Retirement Readiness Survey 2012

  38. Hungarians recognise advice needs more than other countries Source: AEGON Retirement Readiness Survey 2012

  39. Where would you go for advice? Source: AEGON Retirement Readiness Survey 2012

  40. Advice needs identified Source: AEGON Retirement Readiness Survey 2012

  41. What do consumers want from insurers? Source: AEGON Retirement Readiness Survey 2012

  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)

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