India ranks first in AEGON Retirement Readiness Survey 2014

AEGON Religare Life Insurance (ARLI), released the India report on the AEGON Retirement Readiness Survey 2014 - Changing Face of Retirement. In the 15-country online survey that was carried out jointly by ARLI’s parent company - AEGON and Cicero Consulting, India participated for the very first time and ranked first on the AEGON Retirement Readiness Index (ARRI), ahead of BRIC counterparts - Brazil and China.

The research team developed the AEGON Retirement Readiness Index (ARRI) to better assess how well employees view their level of retirement preparedness. The India Index score of 7 is the highest of all 15 countries surveyed. This means that an ‘average’ or ‘typical’ Indian with online access has only a ‘medium’ level of retirement preparedness. 49% of the Indian employees surveyed, claim to be habitually saving, compared with 38% of the global sample.

On the release of the India report, KS Gopalakrishnan, Managing Director & Chief Executive Officer of AEGON Religare Life Insurance (ARLI) said, “India is an emerging market for pensions and annuities. With the outcome of the Retirement Readiness Survey where India has ranked first on the retirement readiness index, we are confident that there exists a huge potential for specific pension and annuity plans. With AEGON’s global expertise in this segment, we are hoping to bring in products to satisfy the retirement appetite of the Indian consumer.”

The India report reflects the dynamism, common to emerging markets, and is also linked to the strong savings culture engrained in the Indian society. The economy is young and vibrant; and many Indians are optimistic of the future prosperity. This survey finds that those who have access to a pension are largely confident about their retirement. Yet this group represents only a minority of a population that faces much more extensive challenges to retirement readiness. In the period of prosperity that drives young Indians optimism for the future, the challenge for retirement readiness will be to distribute these gains among all of society.

Positive Aspirations and Expectations

Respondents in India are amongst of most positive of all the countries surveyed, both with regard to expectations for the economy and their own financial situation in the next 12 months:

• 48% expect the economy to get better;
• 57% expect their own financial situation to get better;
• 45% believe that future generations of retirees will be better off than those currently retired.

37% (double the global average of 19%) of workers are confident that they will be able to fully retire with a lifestyle they consider comfortable and 43% of fully retired Indians are confident that they will always be able to live in retirement comfortably.

Planning

61% claim to have a plan for retirement, but not one which is written down.

53% claim to have a back-up plan in case they are unable to continue working before planned retirement age is reached. For 74% of those with such a plan, savings will be used.

Indians (both workers and those already fully retired) are using a range of instruments to invest in for retirement:

• Fixed deposits (59%) and Life insurance (54%) were mentioned by over half of those surveyed.
• Other popular instruments include: Provident Funds (47%), gold (41%), property (40%), pension funds (NPS) (37%), and mutual funds (35%).

With regards to the type of pension plan, twice as many Indians would choose a ‘lower return, guaranteed’ pension over one that offered higher returns but more uncertainty (62% vs. 31%).

Making Saving Easy 

• 65% say that lack of money to invest is an obstacle to saving for retirement
• A pay rise would encourage 41% to save for retirement
• Easy-to-use access to tracking and managing retirement savings would encourage 39% to save
• 37% would do so if they received a better retirement plan match from their employer
• Auto-enrolment being offered by an employer is regarded as a reasonable way of saving for retirement
• 61% would either prefer to receive a regular income (such as an annuity payment) or receive a mix of a lump sum and a regular payment).

A Flexible Transition 

• 58% expect some sort of transition, either by changing the way they work (e.g. working part-time or on temporary contracts) before eventually giving up paid work (35%), or by changing work and continuing in some capacity throughout retirement (23%)
• 32% of Indian workers claim their employer offers work, more suitable for older workers (e.g. less stressful or physically demanding work), and 31% are offered the option to move from full-time to part-time working.  The same proportion of workers claim they are offered flexible retirement plans which allow working beyond the usual retirement age.
• 34% are offered financial advice (compared with 13% globally) and 32% are offered employer provided healthcare in retirement (16% globally).
• 54% of Indian workers believe their employer provides them with enough information and support to help with retirement planning.
• 46% believe that there has been no difference in the provision of information and support.

Key Recommendations

Widening pension coverage through automatic enrollment: Given the experience in other countries, automatically enrolling employees into workplace pension arrangements could play a significant role in achieving the need for wider private pension coverage. 

Developing simple savings and investments which help people manage long-term finances: Indians are increasingly able to save for their long-term finances and undertake retirement planning. Policymakers need to facilitate this process through encouraging the further development of third pillar (personal) pension products and other long-term savings products which can help Indians manage long-term investment risks and meet future retirement income needs through offering guaranteed pay-outs. The need to create simple savings and investment products should be a key consideration in this process as well as the need to ensure that these products are appropriately incentivised through the tax system.

Developing a broader understanding of financial planning needs through a national financial education program: Indians require much greater knowledge about retirement planning to help them keep up-to-date with product and investment decisions in a fast changing market place in the coming years. Building general levels of financial awareness, awareness about retirement planning choices, the requirement to consider annuities and other income generating options in retirement should be a major priority for policymakers.