AllianzGI Unveils the “Golden Ten Years” Rule to Boost Retirement Confidence, from Survey Data
06/05/2015
| • | Hong Kongers are becoming more realistic in their retirement expectations, with expected shortfall reaching HK$1.5 million, down 16.7% from 2014 |
| • | Inertia in planning is widely reflected at pre-retirement and retirement stages |
| • | Retirees’ pension investment strategies are even more polarised than pre-retirees’ – 53% pension investments are bet on stocks and fixed savings deposits, respectively |
| • | Early retirement planners are nearly three times as confident about their retirement |
| • | Making pension work harder – pre- and during retirement – helps in achieving desired retirement lifestyle |
| • | RMB picks up in popularity (38%) as a preferred post-retirement product to beat inflation |
Catching the "Golden Ten Years" at the right time – both pre- and during retirement – helps in boosting retirement confidence of Hong Kong workers three times and in narrowing down the retirement gap, according to the Allianz Global Investors ("AllianzGI") Retirement Confidence Survey released today. In the second year since its inception, the annual survey looks into the changing perceptions, concerns and behaviours amongst pre-retirees and retirees towards retirement, especially during times of market volatility.
Elvin Yu, Head of Institutional Business, Greater China and South East Asia commented, "Compared with the findings last year, our survey this year shows that the members of Hong Kong’s working population are becoming more realistic and pessimistic in their retirement expectations; they are turning passive – shifting from investment mode to cost-control mode – in retirement planning [possibly due to the volatility and uncertainties they see in the global market]. By taking proactive measures, especially at two critical stages in life, i.e. planning early before retirement and staying invested during retirement, the chance to achieve their ideal retirement can be significantly enhanced."
More realistic, pessimistic and passive retirement approach during times of volatility
Amid global market volatility, Hong Kong workers are becoming more realistic about their expectations towards retirement in terms of age and funding gap:
| • | On the average, people expect to extend their work life by two years (2015: 61.4 years vs. 2014: 59 years) |
| • | While most people are still short for one-third (34%) of the expected fund for ideal retirement (i.e. HK$4.5 million), the gap between the average desired retirement funds required and the expected achievement has dropped by 16.7% to HK$1.5 million from HK$1.8 million last year.1 |
Pessimism towards retirement has escalated over the past 12 months. A lesser number of Hong Kong workers feel confident that they can achieve an ideal retirement life (2015: 31% vs. 2014: 34%). One-third (32%) of the members of the working population even believe that their quality of life would be worse when they retire.
Looking into the survey findings, AllianzGI sees a significant shift from "pro-active" to "responsive" retirement planning approach. When asked about what actions need to be taken to bridge the retirement gap, Hong Kongers’ preference for cutting down on living expense has nearly doubled (2015: 55% vs. 2014: 30%) since last year, outgrowing their preference in increasing investing pre-retirement (2015: 20%) and during retirement (2015: 40%) by 1.75 times and 0.375 times, respectively. Less people have considered retiring overseas (2015: 37% vs. 2014: 43%) even when close to half (44%) of the respondents consider it as a cost-cutting option.
Inertia in pension planning at pre-retirement and retirement stages
Further investigating the source of this HK$ 1.5million retirement gap this year, AllianzGI observes that Hong Kong workers show a palpable lack of satisfaction, knowledge, planning and management of their pension (MPF/ORSO) investment. Only one-third of them see growing their pension wealth – either pre- or during retirement – part of their strategy in extending their pension life:
| • | Satisfaction: Less than half (44%) of the respondents find their current pension schemes useful. |
| • | Knowledge: Only four out of ten respondents (41%) know more than four key MPF products. |
| • | Planning: Few are actively managing their pension investments pre-retirement, with 36% frequently reviewing their MPF/ORSO performance and 30% adjusting investments every 6 to 12 months. Less than one-third (30%) have planned on how to exercise their pension rights upon retirement. |
| • |
Management: While six out of ten people (58%) opt for one-off withdrawal of MPF/ORSO benefits and prefer keeping the pension money in their own pockets, few have a long-term, diversified strategy in place to continuously grow their pension funds when they retire. The underlying risk they are taking for their retirement portfolio is highly polarised, with stocks (38%) and fixed savings deposits (37%) being the two most popular asset classes. While RMB is gaining increasing popularity (55%) as an investment vehicle, it is picking up as a preferred post-retirement investment product (38%) to beat inflation. |
Timing is key: the "golden ten years" rule – pre- and during retirement – in boosting retirement confidence
Rule 1: Early Pre-retirement Planning
More than three-quarter (77%) of Hong Kong workers agree that "retirement should start earlier". However, few put it into action. Only one-third (33%) of Hong Kong workers are contributing to their retirement plan through investments or savings on a monthly basis. The majority is still at planning (24%), thinking (20%) and talking stage (4%). Almost one-fifth (19%) simply have done nothing about retirement.
Comparing those Hong Kong workers who have retirement plans in place with those who do not, the survey observes a "golden ten years rule" in boosting retirement confidence: on the average, these retirement planners started planning approximately ten years earlier than the date that those who do not have retirement plans think they are planning to start (36 years vs. 47 years). As a result, these retirement planners are nearly three times (42% vs. 16%) more confident than their peers, and they also have a relatively brighter outlook on the quality of their retirement life (75% vs. 59%).
Rule 2: Staying invested during retirement
According to the survey, for an average individual with a monthly spending of HK$17,500 post-retirement, the expected retirement funds would only support him / her for 14 years after retirement. Therefore, taking advantage of these "ten golden years" during retirement not only for enjoying life but also for further wealth accumulation is crucial to prolong the lifespan of retirement funds.
Currently, many Hong Kong retirees are adopting an even more polarised wealth accumulation strategy – focusing on stocks (53%) and fixed savings deposits (53%) – than pre-retirees. Coupled with their relative lack of product knowledge (retirees: 15% vs. pre-retirees: 41%), Hong Kong retirees are achieving a lower average return on investment (ROI) of 7.3% (i.e. 2.4% p.a.) for the past three years at a rate that could hardly beats inflation.
Elvin Yu elaborates "Moving onto the retirement stage, as retirees transition from being "in" the workforce to "out" of the workforce, it is important for them to adjust their mentality moving onto the retirement stage when they are to protect and preserve their pension wealth in a disciplined and risk-controlled manner. It is also important to implement a low-volatility investment strategy that generates stable income in the "golden ten years" post retirement to further extend the life of their pension."
The AllianzGI ‘Retire Plus’ Service enables clients to stay invested after retirement while enjoying flexible financial arrangements. "We expect this service could effectively achieve continued capital growth for retirees and extend capital depletion post-retirement by as much as 70%, which allows retirees to achieve their desired retirement lifestyle in many more golden years to come."
1 An average Hong Kong worker expects to accumulate up to HK$2.97million (2014: HK$3.1 million) by the time he or she retires, representing 34% (2014: 37%) less than needed amount for an ideal retirement, i.e. HK$4.5 million (2014: HK$4.9 million).