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

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Presentation on theme: "Insurance solutions for an aging population Consumer Perspectives November 2012 Mark Twigg Executive Director, Cicero Group."— Presentation transcript:

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 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 3 Spain France UK Germany Poland Sweden 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 4

5 Ageing societies: A demographic time bomb? 5

6 The world is ageing rapidly Proportion of the world population over 60 and under 14 Source: UN population division 6 By 2040 there will be 1.8 billion people at or in retirement age

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

8 Europe is rapidly ageing Old age dependency ratio (65+ population per year olds) Hungary 1950: : : 43.6 Germany 1950: : : 56.5 Poland 1950: : : 47.9 Sweden 1950: : : 42.3 UK 1950: : : 39.9 Spain 1950: : ; 61.9 France 1950: : : 43.4 Source: UN population division 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

9 An uncertain future combined with low levels of retirement preparedness 9 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? 10

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

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

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

14 Generating retirement incomes in future 14

15 Four pillars of retirement funding 1. State2. Employer3. Individual4. Work 15

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

17 Institutional Responses 1.The State 2.The Employer 17

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

19 Hungarians have least confident in the state 19 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

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

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

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

24 How will your transition into retirement change? 24 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

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

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

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

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

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

31 What would encourage you to save more? 31 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 32

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

34 Income needs increase with age 34 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 35

36 What product features really matter in retirement? 36 ‘The Annuity Puzzle’ Frail retirement Under-estimated Source: AEGON Retirement Readiness Survey 2012

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

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

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

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

41 What do consumers want from insurers? 41 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) 42


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