Pensions crisis is a global problem


Employees across the world are growing increasingly pessimistic that they will have a financially secure retirement despite a backdrop of global economic recovery and rising capital markets.

Principal Financial Group's third annual Global Financial Well-Being Study found that people are so pessimistic that fewer than a quarter (22 per cent) are very confident that they will have enough money to pay for even basic expenses - food, shelter, and clothing - during retirement.

Moreover, the percentage of respondents who foresee a worsening standard of living in retirement has actually increased between 2003 and 2004 in eight out of the 12 countries surveyed.

"This is the third year we have commissioned The Principal Global Financial Well-Being Study, and the numbers keep pointing towards worry, and in some cases, outright hopelessness about having a financially secure retirement," said Norman Sorensen, president of Principal International.

"Through the economic ups and downs of the past three years, the study has kept us informed of one constant: a sobering and deep-seated pessimism about achieving a financially secure retirement."

The Principal Global Financial Well-Being Study is based on a survey of 5500 people In 12 countries: Brazil, Chile, China, France, Germany, Great Britain, Hong Kong, India, Italy, Japan, Mexico, and the United States.

Most participants in the study do not have a rosy view of their own retirement. In fact, many think their standard of living in retirement will be worse than it is now.

At least four out of ten people in Italy, Germany, Brazil, the United States, Japan, and France foresee a worsening standard of living.

The proportion of those saying that standard of living in retirement will be worse than now has risen particularly dramatically in Hong Kong (29 per cent in 2004, up from 17 per cent in 2003), Italy (40 per cent, up from 28 per cent), Germany (44 per cent, up from 34 per cent), and most notably, the United States (49 per cent, up from 29 per cent).

In the U.S., (as in Brazil and Chile) only a quarter of respondents said they are very confident that they will be able to afford basic expenses in retirement, less optimistic than citizens of China (36 per cent), India (36 per cent) and Great Britain (28 per cent).

Survey respondents in France, Italy and Japan are particularly downbeat. Only 13 per cent of French, eight per cent of Italian and three per cent of Japanese respondents are very confident they will be able to pay for basic expenses after they retire.

Governments not doing enough . . .
A common theme of the survey is the feeling that governments and employers are not doing enough to ensure retirement security.

The overwhelming majority of survey participants realise that they can no longer rely on their ailing state pension systems. Fewer than six per cent of workers in the U.S., Italy, Great Britain, Germany, France and Japan are very confident that their governments will continue to provide the level of benefits received by retirees today, while only 15 per cent of Britons ) think the government is doing very well or somewhat well in ensuring they have a financially secure retirement.

"France, Germany and Italy and parts of Great Britain have (government-run) systems which are completely unfounded. Those systems are gradually collapsing," Sorensen said.

"Consumers are smart and saying 'no way, we're not going to be able to get the same benefits that people are getting now.' The government is simply not going to be able to pay," he warned.

In contrast, almost half of Chilean participants, six out of ten mainland Chinese and half of Indians are more trusting, feeing that their governments are doing well in performing its role to ensure that they have a financially secure retirement.

. . . and employers don't care
The lack of trust in their governments' ability to deliver on retirement benefits is matched only by participants' lack of faith in the companies for which they work.

This is most prevalent in Japan, where only 36 per cent of respondents are very or somewhat confident that they will receive the full benefits from their employers' retirement funds.

But even in countries with the highest levels of overall confidence (i.e. very or somewhat confident) - Hong Kong (75 per cent) and Britain (71 per cent) – only a third are very confident that they will receive the benefits to which they are entitled.

But still we don't make plans
To make matters worse, in every country there is a disturbing lack of financial preparation for retirement, even though many study participants (at least four in five participants in almost every country surveyed) say they are doing very well or well in preparing for retirement.

"Participants may think they are doing well in living up to their retirement-planning responsibilities, but a closer look at their behaviour reveals that they are not," said Principal Financial Group's Larry Zimpleman.

To reinforce Zimpleman's point, almost half of the study participants completely or somewhat agree that they have not yet planned for their retirement. More than two-thirds of Brazilians, and more than half of those from Chile, Italy and France say the same.

Workers in the U.S. are far more likely to estimate their retirement needs than people in other countries. Almost half (45 per cent) of U.S. workers have tried to assess how much they need to save for retirement, versus only 12 percent in France and Brazil,

In India, 36 percent had tried to estimate financial needs, and 34 percent in Germany and Great Britain did so.

"In addition to enacting systems that either mandate or motivate workers to save for retirement, governments must promote education and financial advice at the employer and individual employee level," said Sorensen.

"By not only allowing but also encouraging employers to provide professional financial advice to workers, governments can make significant strides to ward off the looming global retirement crisis."