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Jun 2024

Fear of outliving your savings

Source: Asia Insurance Review | May 2024

The traditional ratio of working populations to retirees across the globe is being upended by a complex mix of factors.
These factors include improvements in diet, living standards and healthcare which are combining to increase human longevity – resulting in the ageing of populations that has grabbed so many headlines over recent years.
According to forecasts from the United Nations, one in every six people will be over the age of 65 by 2050. The same figure today is around one in 11.
The burden on society will be huge. The challenge of funding old age benefits as longevity increases is set to grow in scale as the years pass.
Some forward-thinking nations in Asia Pacific already have both plans and legislation in place to encourage working people to plan for their retirement. In Australia, for instance, there are countless incentives (particularly tax breaks) for workers to put money into superannuation savings schemes to ensure that they are self-sufficient in their later years.
The reality is that while the looming retirement crisis may be a headache for society – it could be a great opportunity for both life and health insurers.
Around the world approximately 40 years ago, many employers started to shift the responsibility for funding retirement from employers to employees – represented by the shift from defined benefit pensions to defined contribution plans.
But saving for retirement is a complex business and many people prefer simply not to think about it – especially, it seems, Gen X who are not saving adequately to fund retirement. There inevitably comes a point at which ‘accumulation’ of savings turns to ‘decumulation’.
One solution to the problem of an individual outliving their savings lies in annuity insurance products – although they have had a bad press and many people feel that they are expensive and complicated.
The reality for many people in Asia Pacific is that annuities, at best, would only provide a partial answer to the conundrum of living out a long life with dignity. For many societies in the region, the problem is not addressed in a pecuniary way – living in old age is what children are for, after all.
Many people in APAC today earn too little to save meaningful amounts – and this is not unique to the region. According to the US Federal Reserve, around 25% of Americans do not have any retirement savings at all, so the problem truly is a global one.
The challenge for insurers in APAC will lie in doing their bit to improve financial literacy, helping educate customers about the need to plan for retirement, what decumulation means, to get over their fear of big financial entities as the bad guys – but most of all in designing products that are simple, affordable and attractive.
Insurance products aimed at encouraging savings and investment would be a good start point – and insurers already have the customer base to market to. No two countries in APAC will approach the problem in the same way because each nation is unique – but the challenge is a common one and it will not simply go away. A 
Paul McNamara
Editorial director
Asia Insurance Review
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