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, World Population Prospects, 2010 revision
This chart shows how average number of children per woman, the standard measure of fertility, has fallen from around 5 in the 1950s to just 2.5 now.
Just over 2 children per woman are required to keep populations constant.
This is estimated to fall further, to 2.15 by 2050, and will be far lower in the present-day developed world.
This decreasing number of children makes the family an unreliable source of income in old age, as the ratio of parents to children declines.
Definitions:
Dependency ratio: the ratio of those not in the labour force (children and the retired) to those in the labour force (the working-age population).
Replacement level: The number of children per woman required to keep a population steady (where all other factors are equal, i.e. discounting effects of immigration etc). This ratio is just over 2 children per woman.
Source: UN population division

8. Europe is rapidly ageing
Old age dependency ratio (65+ population per year olds)
As a whole, Europe’s total fertility has fallen from 2.65 in to just 1.53 in
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
1. State
2. Employer
3. Individual
4. Work

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)