Government benefit cuts, longevity among global trends affecting retirement readiness

The reduction in government benefits (38 per cent), life expectancy (27 per cent) and volatility in financial markets (24 per cent) are the most frequently cited trends affecting people’s plans for retirement around the world, according to Aegon’s latest annual retirement readiness survey.

The findings are based on the responses of 14,400 workers and 1,600 retired people across 15 countries: Australia, Brazil, Britain, Canada, China, France , Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey and the United States.

Globally, almost half (49 per cent) of survey respondents said they believe that future generations of retirees will be worse off than those currently in retirement. Among Canadian respondents, 46 per cent agreed, while nine per cent said they think future generations will be better off.

Read: 90% of HR leaders worried about employee retirement readiness

Employer-sponsored retirement plans have a role to play in helping people financially prepare for retirement, according to the survey. However, fewer than half (43 per cent) of those currently working said their organization offers a retirement plan with employer contributions, and 27 per cent have access to one without contributions from their organization.

Despite those findings, people still have a positive view retirement. Globally, 57 per cent of respondents said they envision some form of transition to retirement in which they continue working or work part-time for some time. But many face a financially vulnerable retirement, as workers expect they’ll need 68 per cent of their current annual income in retirement. Only a quarter (25 per cent) thought they’d achieve that goal, with a further 13 per cent suggesting they’d achieve about 75 per cent of their required income.

Just 13 per cent of global respondents said they have a written retirement plan, while 44 per cent said they have an unwritten one. Only 32 per cent of those still working have a backup plan if they’re unable to continue working before their planned retirement age. In Canada, just 17 per cent of respondents said they have a written plan, while 56 per cent said they have an unwritten one.

Read: How plan sponsors can set members up for retirement success

When asked what, if any, financial means they’re currently using or have used to prepare for retirement, the most frequently cited provision is government benefits (46 per cent), followed by savings accounts, money-market funds or certificates of deposit (38 per cent); private pensions or individual retirement accounts (29 per cent); life insurance (24 per cent); and investments such as stocks, bonds or mutual funds (23 per cent). Just 19 per cent of respondents cited a defined benefit plan, and fewer (16 per cent) cited a defined contribution pension.

Among Canadian respondents, 40 per cent said they expect their retirement income to come from the government, followed by their own savings and investments (33 per cent) and their employer (27 per cent).

Another common concern in retirement is potential health-related issues. Globally, 49 per cent of respondents said declining health is a retirement concern, followed by not being able to stay active (34 per cent) and developing Alzheimer’s disease or dementia (33 per cent). 

Among respondents who have already retired, 39 per cent said they stopped working sooner than they’d planned. The largest single reason for doing so was their own ill health (30 per cent). Only 21 per cent of global respondents are confident that their health care will be affordable in retirement, yet only 45 per cent said they’ve considered health costs as part of their retirement savings needs.

Read: What are employer’s options for reducing risk in retiree health plans?

“A better understanding of how people think and feel about retirement is crucial in order to help everyone plan for the future,” said Alex Wynaendts, chief executive officer at Aegon, in the report. This year’s survey is more than just a collection of retirement statistics, he said.

“Taken as a whole, its conclusions represent a compelling call to action. It is now time for a new social contract; one in which we don’t only take stock of the change taking place around us today, but we also embrace the economic and social realities of tomorrow.

Read: Canada to still lag behind OECD average replacement rate for typical workers: report