The Aegon Retirement Readiness Survey 2018

Transcription

1 Country Report The New Social Contract: a blueprint for retirement in the 21st century The Aegon Retirement Readiness Survey 2018 The Aegon Retirement Readiness Survey

2 Contents Introduction 3 Key Findings 4 The 2018 Survey Part 1: Megatrends and evidence of a crumbling social contract 5 Part 2: Improving individual retirement security the role of financial literacy and auto-enrollment 10 Part 3: Potential health issues loom large as retirement concerns 14 Part 4: Living and aging in good health and with dignity 17 Part 5: Forging the new social contract 19 Appendix 20 Note: Percentages are shown to zero decimal places. Rounding percentages to the nearest whole number may result in slight differences; for example, the percentages in some charts summing to slightly under or slightly over 100 percent. 2 The Aegon Retirement Readiness Survey 2018

3 Introduction The Aegon Center for Longevity and Retirement is pleased to present findings from its seventh annual Aegon Retirement Readiness Survey, The New Social Contract: a blueprint for retirement in the 21st century. This survey is the result of collaboration with nonprofits Transamerica Center for Retirement Studies (based in the U.S.) and Instituto de Longevidade Mongeral Aegon (based in Brazil). This report, while specific to, is based on research conducted in 15 countries spanning Europe, the Americas, Asia and Australia. Changes taking place in and around the world are giving rise to new pressures on existing social contracts forged during the last century. This is forcing all of us to look differently at our plans for achieving good health and financial prosperity in later life. The idea of a social contract has been central to the way in which people in plan and prepare for retirement. This contract was established between governments, employers and individual workers, setting forth their respective responsibilities. For decades, has operated an enduring system of benefits and entitlements that has helped millions of people in the country to achieve a secure and fulfilling retirement. This report focuses on the responses of 1,000 people in including 900 workers and 100 retirees. It investigates the stresses and pressures being put on the ese retirement system and the roles the government and employers are expected to perform. The report evaluates the retirement readiness of workers themselves and investigates improvements that can be made to help workers achieve the aspirations they hold for their retirement. It explores the growing importance of health in the realities of financial planning, and for the first time the report examines the issue of aging with dignity. With more people in reaching their 80s, 90s, and 100s, issues around healthy aging and financial security are becoming ever more pertinent. However, when the ese retirement system was created in the 20th century, the average life expectancy in was far shorter than it is today. Even as recently as 1960, the life expectancy for the average person in was 68 years close to the post-war age the government pension could be drawn, 60 years. While the full retirement age to receive the government pension is set to increase to 65 by 2025 (and entering drawdown later than 70 could soon be legislated), it should be noted that life expectancy has dramatically increased to 84 years as of Nevertheless, with people in potentially spending over a decade longer in retirement than previous generations, the existing retirement system is increasingly coming under financial strain. As the findings throughout this report illustrate, it is time for a new social contract. In the run-up to his successful election as president of the Liberal Democratic party of for the next three years in September 2018, incumbent president of the country Shinzō Abe proposed granting individuals more pension benefit if they wait to enter drawdown until they are 70 or older. 2 1 World Bank, Life Expectancy at birth, total (years) -, 2018 ² Nikkei Asian Review, Abe ready to tackle s retirement age and pension crunch, 2018 The Aegon Retirement Readiness Survey

4 Key Findings: The Aegon Retirement Readiness Index (ARRI) measures how prepared workers around the world feel for their retirement. has the lowest ARRI score of the countries in the study at 4.7. s score and position remain unchanged since last year. Reductions in government retirement benefits (48 percent) and increased life expectancy (31 percent) are the key megatrends people in say are impacting on their plans for retirement. A quarter (24 percent) say that the prolonged low interest rate environment is impacting on their plans for retirement. Three-in-five (59 percent) people in think that future generations of retirees will be worse off in retirement than current retirees, ten percentage points above the global average (49 percent). Just three percent of people in think that future generations will be better off, while 23 percent think it will be about the same as it is at present. Three-in-ten people in (29 percent) correctly answer all of the Big Three Financial Literacy questions developed by Drs. Annamaria Lusardi and Olivia S. Mitchell in 2004 and used in this survey with their permission 3. People in under-perform against the global average on the compound interest question and fall roughly in line on the inflation question and risk diversification questions. Those that perform best on the Big Three financial literacy questions (correctly answering all 3) achieve a higher ARRI score (5.4 compared to 4.7 among all people in ). Fewer workers in are open to the idea of automatic enrollment than seen globally (40 percent find the idea appealing compared to 57 percent globally). Women (36 percent), those with a lower level of education (36 percent) and those with a lower income (37 percent) are a little less receptive to the idea. Over half (52 percent) of people in s retirement income is expected to come from the government (compared to 46 percent globally). While in 18 percent is expected to come from their employers, 30 percent is expected to come from their own savings and investments. Asked what action the government should take to address the growing cost of Social Security, the most common view held by people in (34 percent) is that the government should take a balanced approach with some reductions in individual payments and some increases in tax. A further 27 percent think the government should increase overall funding available for Social Security through raising taxes without having to reduce the value of individual payments. Just 13 percent take the opposing view, that the government should reduce the overall cost of Social Security providing by reducing the value of individual pension payments without having to increase tax. Just 29 percent of workers in are saving habitually for retirement (compared to 39 percent globally). A further 31 percent are only saving on an occasional basis, and 10 percent are not saving now but have done in the past. A quarter (24 percent) are not currently saving but do intend to in the future and six percent have never saved for retirement and never intend to. 3 Lusardi and Mitchell, The Economic Importance of Financial Literacy: Theory and Evidence, Journal of Economic Literature, The Aegon Retirement Readiness Survey 2018

5 Part 1: Megatrends and evidence of a crumbling social contract Globalization, innovation, advances in science and technology. Our world is changing rapidly amid these and other trends. Many of these trends are so impactful that they can be considered megatrends. Changes brought about by megatrends are already shaping societal constructs, how people lead their daily lives, plan for their future, and, ultimately, prepare for their retirement. However, to understand how and why these megatrends are affecting retirement plans in, it is important to set these within the context of the country s current socioeconomic landscape. The ese government operates a two-tiered pay-as-you go pension system. The flat rate National Pension System (NPS) covers all residents in, and the Employee Pension Insurance system covers workers, with contributions to the latter (14.6 percent of wages) equally split between employers and workers and both of these systems have accumulated sizeable reserves. Nevertheless, the government has introduced a number of reforms with the aim to achieve greater system sustainability. In addition to raising contribution rates, in 2004 an automatic adjustment mechanism was implemented which sought to alter pension benefits in line with macroeconomic and demographic changes. However, with only minimal reductions in benefits made since 2015, alongside rapid population aging in and stagnant fiscal growth, public pension spending has increased from 4.8 percent of GDP in 1990 up to 10.4 percent of GDP in ,5. Subsequently, with the cost of government pensions rising, people in are sensitive to the possibility of any reductions in payouts. Almost half (48 percent) cite reductions in government retirement benefits as a trend impacting their plans for retirement (10 percentage points above the global average of 38 percent). It is also important to note that currently has the world s longest life expectancy at 84 years 6. Making money last throughout an everlengthening retirement is recognized here, and almost a third (31 percent) of people in say increased life expectancy is impacting their plans for retirement. A quarter (24 percent) of people in say the prolonged low interest rate environment is impacting their plans for retirement. Pensions and other long-term savings products for retirement rely on the virtue of compound interest to generate enough capital to drawdown on throughout the duration of an individual s time in retirement. is one of only a handful of countries worldwide to have a negative interest rate, currently running at percent (and having run at less than 1 percent since the 1990s), 7 and as such this prolonged low-interest rate environment in is having a stifling effect on long-term savings growth. Chart 1 Reductions in government benefits and increased life expectancy are the most often cited global trends people in see impacting their retirement plans Reductions in government retirement benefits 38% 31% Increased life expectancy 27% 24% Prolonged low interest rate environment 20% 21% Volatility in financial markets 24% International political instability 21% 19% Changes in labor markets 15% 21% Climate change 13% 12% Changing demographics 12% 14% Cybersecurity issues 9% New technologies and digital transformation 9% 12% Terrorism Globalization Urbanization 7% 6% 5% 8% 11% 12% 48% Don't know None of the above 8% 10% 15% 14% Global 4 Ministry of Health, Labour and Welfare, Population structure, households and pensions, Cabinet Office, Quarterly Estimates of GDP: January - March 2016 ( The First Preliminary), The World Bank, Life expectancy at birth total (years):, Trading Economics, Interest Rate, 2018 The Aegon Retirement Readiness Survey

6 With this context of the present in mind, the survey finds that looking forward, people in are pessimistic about the future of retirement. Almost three-in-five (59 percent) believe that future generations of retirees will be worse off than those currently in retirement, compared to 49 percent globally. Just three percent of people in think that future generations will be better off, compared to 18 percent globally. Chart 2 Three-in-five people in think future generations will be worse off in retirement Worse off 59% 23% 3% 16% About the same Better off Don t know Global 49% 24% 18% 9% Amid these concerns about potential reductions in government benefits, increased longevity and changes in employment trends, the current social contract is crumbling. As it stands, the ese retirement system represents a social contract that currently operates on a three-pillar approach: Social Security (Pillar 1) and workplace retirement benefits (Pillar 2), and personal savings and investments (Pillar 3), are provided by the partners of the social contract the government, the employer and the worker, respectively. This contract was developed and proliferated throughout the twentieth century to help ensure that individuals were provided for in their old age. People in expect the bulk of their retirement income to come from the government (52 percent compared to 46 percent globally). With employers already contributing to the government Employee Pension Insurance system, just 18 percent of retirement income is expected to come from employer schemes (globally: 24 percent). Finally, people in expect 30 percent to come from their own savings and investments. The question is, given all the pressures on the system, how do people in expect the Government to sustain this level of funding? Chart 3 People in expect over half of their retirement income to come from the government Government 52% 18% 30% Employer Own savings & investments Global 46% 24% 30% 6 The Aegon Retirement Readiness Survey 2018

7 The role of the government under growing pressure operates a sophisticated pay-as-you-go (PAYG) Social Security model, where today s workers contribute and pay for the benefits of today s retirees. However s model is slightly more sophisticated than other models used around the world, in that it affords the ese government more control. When the government anticipates a decrease in future working populations, a portion of the ample contribution made by current workers is reserved in the Government Pension Investment Fund (GPIF) towards benefit payment for future retirees thus, reducing the burden on future workers. This is a sizeable stash indeed; at 156.4tn (as at the time of writing) it is the largest pension pool in the world. 8 Increases in longevity and lower fertility rates around the world means that populations are aging with retirees living far longer than previous generations. is a prime example of this with the world s longest life expectancy (84 years) and one of the lowest fertility rates (1.44 births per woman in 2016). 9 The ese government has also been reluctant to loosen tight immigration laws which means the proportion of s population aged over 60 is rapidly increasing: it swelled from 23 percent in 2000 to 33 percent in 2015, and is projected to increase to 37 percent by This aging population will indeed impact the government s fiscal policies on taxation and income replacement levels in retirement. Asked what measures the government should undertake to address the growing cost of government pensions, the overall consensus is that action is necessary. While globally the most common view held is that the value of retirement payments should stay the same and that taxes should be increased to fund this (34 percent globally vs 27 percent in ), in the preferred tack is that a balanced approach needs to be taken, with some reductions in individual payments but also conceding that there will need to be some increases in tax (34 percent in against 26 percent globally). A small minority within (13 percent) believe instead that the overall cost of Social Security provision should be reduced, therefore alleviating the need to increase taxes. Chart 4 A third of people in think the government should take a balanced approach; with some reduction in individual payments and some increases in tax The Government should increase overall funding available for Social Security through raising taxes without having to reduce the value of individual payments 27% 34% The Government should take a balanced approach with some reductions in individual payments and some increases in tax 26% 34% The Government should reduce the overall cost of Social Security provision by reducing the value of individual pension payments, without having to increase tax 13% 16% The Government should not do anything. Social Security provision will remain perfectly affordable in the future 5% 7% Don't know 18% 21% Global 8 Ibid, Government Pension Investment Fund 9 The World Bank, Fertility rate, total (births per woman), United Nations, World Population Ageing Report, 2015 The Aegon Retirement Readiness Survey

8 Changes in employment and the impact on employer benefits As well as creating uncertainty about the future of funding Social Security, many of the megatrends discussed on page 5 have also led to changing employment arrangements and employer benefit offerings. This then leads to uncertainty about the role played by employers in helping workers prepare for retirement. Lifelong employment was once commonplace in, propelled by the continuous growth of both the economy and population. However in recent years, many employers have found maintaining this model unaffordable, and as such have begun laying off employees, switching away from standard seniority systems of employee progression and payment, and converting costly defined benefit (D.B.) pension schemes to defined contribution (D.C.). Meanwhile for workers, switching employers has become a growing trend, and as such the number of participants in D.C. workplace pensions has gone from a scarce handful at the turn of the millennium to over two-fifths (43 percent of all plan participants) as at August ,12 In this context, the portability D.C. pensions provides is beneficial as workers move away from a job-for-life model of employment (although it does mean that ese workers are being asked to bear more of the risk in managing the assets). Since the turn of the millennium, D.C. workplace pensions have gone from being almost non-existent in to over two-fifths (43 percent) of plan participants invested in these schemes instead of DB plans (57 percent), as at August Aegon Retirement Readiness Index and the role of individuals The role the individual takes in preparing for retirement in is gradually increasing, but has further still to go. The Aegon Retirement Readiness Survey (now in its seventh year) measures the level of retirement planning workers undertake as responsibility gradually shifts towards the individual. The ARRI provides an annual score based on responses to six separate questions: three broadly attitudinal (Questions 1, 2, 3) and three broadly behavioral (Questions 4, 5, 6). These questions are illustrated in the diagram below. The ARRI ranks retirement readiness on a scale from 0 to 10. A high index score is between 8 and 10, a medium score between 6 and 7.9, and, a low score being less than 6. (For additional information about the ARRI and its methodology, please see appendix 1.) again achieves a low ARRI score of 4.7 for the third year running. reached a high of 4.8 in 2015, and since the survey began has always placed last. The proportion of workers in achieving a high index score is just four percent, while 77 percent have a low score. Workers in take responsibility for making sure they have sufficient income in retirement (71 percent) and they are aware of the need to plan financially for their retirement (63 percent). However, they really fall down on understanding financial matters when it comes to planning for their retirement (28 percent vs. 61 percent globally), having a well-developed personal retirement plan (21 percent vs. 43 percent globally) and putting aside enough to fund their retirement (16 percent vs. 36 percent globally). Clearly there is much more workers in can do to prepare for retirement. What factors shape the ARRI score? Income replacement Do you think you will achieve the level of income 6 1 Personal responsibility To what extent do you feel personally you think you will need in retirement? responsible for making sure that you will have sufficient income in retirement? Financial preparedness Thinking about how much you are putting 5 2 Level of awareness How would you rate your level of awareness aside to fund your retirement, are you saving enough? on the need to plan financially for your retirement? Retirement planning Thinking about your own personal retirement planning 4 3 Financial understanding How able are you to understand financial matters process, how well developed would you say that your personal retirement plans currently are? when it comes to planning for your retirement? 11 Ministry for Health, Labour and Welfare, Average length of service by age group for male and female for 1992, 1996 and 1997, Minstry for Health, Labour and Welfare, Average length of service by age group for male and female for 2017, The Aegon Retirement Readiness Survey 2018

9 Chart 5 places last in retirement readiness Total Spain ARRI score (per country) Hungary France Poland Turkey Netherlands Australia United Kingdom Canada Germany Unitied States Brazil China India The Aegon Retirement Readiness Survey

10 Part 2 Improving individual retirement security the role of financial literacy and autoenrollment People in generally have a negative outlook on retirement. Sixty-three percent associate retirement with negative words such as poverty, insecurity, and loneliness, compared to 50 percent globally. Almost half (49 percent) associate retirement with positive words like freedom, opportunity, and leisure, well below the global average (68 percent). This negative mindset is further exemplified by the low levels of retirement aspirations held by people in. The most common aspiration held globally is travelling (63 percent), yet in this is just 45 percent. While 57 percent of people globally are looking forward to spending more time with friends and family, this falls to just 39 percent in. And while 27 percent of people globally are looking forward to volunteering in their retirement, this falls to just 13 percent in. In fact, the only retirement aspirations people in are more likely to hold than the global average are continuing to work in the same field (19 percent) and continuing to work in another field (13 percent). Despite the mandatory minimum retirement age for receiving pension payments, the government provides bigger monthly pensions to those who retire after 65 and is currently looking to legislate shifting this up to 70, with Prime Minister Abe looking to legislate this between , as he suggested in his recent leadership campaign. 13 Furthermore, the pension age of the employees pension insurance system is set to increase to 65 by 2025 for men and 2030 for women. Another measure the ese government passed in 2013 around aging in the workplace will raise the mandatory retirement age to 65 years, or keep the retirement age at 60 and firms to then re-hire the employee until 65 by Chart 6 Traveling, pursuing new hobbies and spending more time with friends and family top the list of s retirement aspirations Traveling Pursuing new hobbies 39% Spending more time with friends and family 57% Continue working in the same field 15% 19% Continue working, but in another field 13% Volunteer work 27% 11% 13% 12% Studying 12% Living abroad 7% 12% Starting a business 6% 10% NET: Business/ paid work 25% 31% 43% 45% 50% 63% Don't know 3% 7% None of the above 3% 7% Global Over the years, the survey consistently finds that saving on a regular basis is the best route to retirement readiness. Three-in-ten (29 percent) workers in are saving for retirement on a habitual basis and 31 percent are doing so, but only on an occasional basis. One-in-ten (10 percent) aren t saving at all although they had in the past; 24 percent aren t saving but do intend to; and six percent are not saving for retirement and have no intention to do so. 13 Ibid, Nikkei Asian Review 14 OECD, Pensions at a glance 2017: Country Profiles, The Aegon Retirement Readiness Survey 2018

11 Chart 7 Three-in-ten workers in are habitual savers; four-in-ten not currently saving 29% 31% 10% 24% 6% Global 39% 24% 12% 19% 6% Habitual savers - I always make sure that I am saving for retirement Occasional savers - I only save for retirement occasionally from time to time Past savers - I am not saving for retirement now, although I have in the past Aspiring savers - I am not saving for retirement though I do intend to Non-savers - I have never saved for retirement and don t intend to A certain amount of planning is required to make sure that aspirations can be fulfilled in retirement. 45 percent of s workers already have a plan in place for retirement, including six percent who have committed this plan to writing. The act of considering one s future finances and committing this plan to writing formalizes the process thereby increasing the likelihood of success. However, do workers in have the knowledge to make what can be very important and detailed financial decisions? Chart 8 Just six percent of workers in are retirement strategists 6% 39% 44% 11% Global 13% 44% 38% 4% I have a written plan I have a plan, but it is not written down I do not have a plan Don t know Equipping individuals with the tools to better plan for retirement Pressure on the social contract means that ever more responsibility for retirement planning is falling into the hands of individuals and away from the experts. People are increasingly asked to navigate through many different financial concepts, many of which require a detailed level of understanding. With their permission, the survey uses a framework developed by Drs. Annamaria Lusardi and Olivia S. Mitchell dating back to 2004, to measure financial literacy. Lusardi and Mitchell created the Big Three questions that measure understanding of compounding interest, inflation, and risk diversification. Their questions test the respondents actual knowledge of these three topics rather than their self-reported knowledge. 15 The questions along with the correct answers can be found in Appendix 2 (page 21). Respondents in the broadly performed in line with the global average. Three-in-five (62 percent) correctly answered the compound interest question, 61 percent correctly answered the inflation question, and 45 percent correctly answered the risk diversification question. Overall, three-in-ten people in (29 percent) correctly answered all of the Big Three financial literacy questions. 15 Ibid, Lusardi and Mitchell The Aegon Retirement Readiness Survey

12 Chart 9 Three-in-ten people correctly answer all Big Three financial literacy questions Global FL1. The compound interest question % answering correctly 62% 75% FL2. The inflation question - % answering correctly 61% 63% FL3. Risk diversification question - % answering correctly 45% 45% FL1. + FL2. + FL3. - % answering all Big Three financial literacy questions correctly 29% 30% Without the requisite level of financial knowledge, it is impossible for people to formulate good retirement plans, or even know what questions to ask of advisors and retirement plan providers when seeking advice. Low financial literacy may also translate into failure to engage in any kind of retirement planning, and in low levels are concentrated among certain groups. While 29 percent of people in correctly answer all three financial literacy questions, this falls to 22 percent among both women and those with a low personal income, 18 percent among Millennials and 19 percent among those educated below undergraduate level. Chart 10 Fewer women, Millennials, those less than degree-educated and those with lower incomes correctly answer all Big Three financial literacy questions than the average 48% 39% 37% 34% 36% 29% 29% 22% 18% 19% 22% Men Women Millennials Correctly answer all Big Three questions Generation X Baby Boomers Less than degree educated Undergraduate degree or above Low personal income Medium personal income High personal income Conversely, workers who correctly answered all Big Three financial literacy questions (thus showing a higher degree of financial literacy) score higher than the average across all areas of their retirement planning. They score higher on the ARRI (5.4 vs. 4.7 workers in overall), are much more likely to be saving habitually for retirement (39 percent vs. 29 percent overall), and more hold a plan for retirement either in writing or unwritten (54 percent vs. 45 percent overall). Workers in who correctly answer all Big Three financial literacy questions are also more likely to feel that they understand their financial planning (36 percent vs. 28 percent overall) and they are much more likely to know the value of their retirement savings (63 percent vs. 47 percent overall). 12 The Aegon Retirement Readiness Survey 2018

13 Chart 11 Workers in with greater financial literacy tend to be better prepared for retirement Workers Financially Literate Workers (Correctly answering all Big Three Financial Literacy questions) ARRI score Habitual savers 29% 39% Have a retirement plan (either written or unwritten) 45% 54% Able to understand financial matters when it comes to planning for retirement 28% 36% I have a very good idea of the total value of all my personal retirement savings and investments. 47% 63% In a world in which workers are expected to exercise more choice over how much they put aside for retirement, and how those retirement savings are invested, it is imperative to increase financial literacy among adults and to provide more education starting at an early age so that children can gain these vital skills that will serve them throughout their lives. The lack of widespread financial literacy is alarming. Addressing it should be a top priority for policymakers, educators and retirement benefit providers, among other social institutions. Changing infrastructure to make it easier for individuals to save The strained social contract is necessitating people to fund a greater portion of their retirement income. Automatic features in defined contribution plans are showing great promise in countries where they have been implemented. Initially created using the behavioral economics theory of nudging as a method to prompt behavior change, automatic enrollment is a retirement plan feature in which employees are automatically enrolled to start saving a portion of each paycheck, and they only need to take action should they choose not to save. s workers typically are automatically enrolled into their company s sponsored pension plan yet just two-in-five (40 percent) workers say they find the idea appealing. What is more, some demographic segments within s workforce are somewhat less approving, particularly women, Millennials, those without a degree (all 36 percent) and those with a low personal income (37 percent). These segments are typically more vulnerable to not saving enough for retirement and may be more likely to benefit from automatic enrollment. Chart 12 Two-in-five workers find the idea of auto-enrolment appealing but approval falls among the nation s women and Millennials 57% 44% 49% 40% 42% 41% 43% 43% 36% 36% 36% 37% Global Men Very or somewhat appealing Women Millennials Generation X Baby Boomers Less than degree educated University degree or above Low personal income Medium personal income High personal income The Aegon Retirement Readiness Survey

14 Part 3 Potential health issues loom large as retirement concerns As reported in Part 2, people in generally hold negative associations with retirement, and naturally the aging process is not without worries. Declining physical health (46 percent) and running out of money (45 percent) top the list of retirement concerns in. A further three-in-ten are concerned about getting Alzheimer s or dementia (31 percent). Notably, compared to global figures, people in show less concern across most of the softer (i.e., more social) concerns about retirement, such as being alone and isolated (17 percent compared to 26 percent globally), losing their independence (15 percent vs 28 percent) and not doing the things they enjoy (12 percent vs 31 percent). Chart 13 Declining physical health and running out of money top the list of s retirement concerns Declining physical health 46% 49% Running out of money 41% 45% Getting Alzheimer's or dementia 31% 33% Lacking social engagement 19% 25% Not being able to stay active 22% 34% Not having a daily routine 15% 20% Losing sense of purpose after stopping work 18% 18% Being alone and isolated Needing assistance with basic activities (e.g., bathing, dressing, meal preparation etc.) Losing my independence 16% 15% 17% 26% 28% 28% Facing mental health issues (e.g., depression) 13% 22% Not being able to do the things I enjoy Needing to move to a nursing home 10% 12% 23% 31% Don't know None of the above 3% 6% 5% 6% Global When it comes to leaving employment to face these endeavors, once again bucks the global trend with far fewer exiting the workplace prematurely. Whereas two-in-five fully-retired people globally retired sooner than they had planned to, the same is the case for just 26 percent of ese retirees. Financially, working up to or beyond the planned retirement age brings a two-fold advantage: the ability to continue saving for retirement, and deferring the need to draw down savings required for retirement. It also helps keep older people more active and more socially engaged. 14 The Aegon Retirement Readiness Survey 2018

15 Chart 14 A quarter of s current retirees retired sooner than planned 17% 56% 26% 1% Global 12% 48% 39% 1% I retired later than I had planned to I retired at the age I had planned to I retired sooner than I had planned to Don't know/ can't recall Forming good health habits during working years can help increase the chances of individuals staying in work for as long as they plan to do so before retiring. Objectively speaking, lifestyles in are considered relatively healthy at a global level, attributed in part to the quality of their lean, balanced diet which includes far less processed food and refined sugars than diets in the West. 16 As of 2016, just 4.2 percent of s population was considered obese, far lower than other survey countries (40 percent in the U.S., 26 percent in the U.K. and 28 percent in Australia). 17 Yet, in the survey just 44 percent of people in self-report that they eat healthily (global: 56 percent). It is likely the benchmark people in compare themselves to is set much higher than in the other countries captured in the research, and as noted in previous Aegon Retirement Readiness Surveys, the ese tend be modest and show low self-esteem. 18 As such, there is likely to be a high degree of subjectivity to their health reporting. The same could be said in terms of under-reporting taking regular exercise: just 39 percent of people in say they do this compared to 51 percent globally. Many companies in fit exercise sessions into work schedules, 19 implementing routines such as the radio-taiso learned at elementary schools by children and carried through to the workplace. This institutionalized exercise regime may once again raise the benchmark the ese use as a measure for their own health-related behaviors. Chart 15 Almost half of people in avoid harmful behaviors such as drinking too much alcohol or smoking tobacco I avoid harmful behaviors (e.g., drinking too much alcohol or smoking tobacco) 47% 58% I eat healthily (e.g., five-a-day portions of fruit and vegetables) 44% 56% I exercise regularly 39% 51% I take my health seriously (e.g., have routine medical check-ups and do regular self-checks) 32% 44% I think about my long-term health when making lifestyle choices. For example, I try to avoid stress 32% 45% I practice mindfulness regularly (e.g., meditation and relaxation exercises) 7% 19% Don't know / prefer not to answer None of the above 2% 1% 6% 13% Global 16 British Medical Journal, Quality of diet and mortality among ese men and women: Public Health Center based prospective study, OECD, Health Statistics 2018, 2018 (custom data acquired via website) 18 Aegon, The Aegon Retirement Readiness Survey 2017: Successful Retirement Healthy Aging and Financial Security, Straits Times, limbers up with monkey bars, radio drills for company employees The Aegon Retirement Readiness Survey

16 Just as forming good financial habits early on in life can help individuals achieve a secure retirement, forming good health habits early can help workers maintain good health into retirement. As well as ese companies longstanding implementation of workplace exercise, employers can play an important role by offering workplace health and wellness programs. Seven-in-ten (70 percent) ese workers would be interested in at least one health and wellness program, if their employer were to offer them. However, desired take-up for individual programs are fairly low compared against global levels, indicative of the prolific presence these already have within ese workplaces, such as: mandatory annual medical examinations and health screenings; vaccinations, wellness programs provided by workplace health insurance societies; a company industrial physician. Workers in may take these attributes for granted and might not particularly value them. On the whole these fall lower down the list, and as such we see preventative screening and vaccinations (30 percent) and tools to monitor health goals/ biometrics (23 percent) at the top of the ese wish-list. Chart 16 ese workers interest in workplace health and wellbeing programs falls below global receptiveness levels Preventative screenings and vaccinations 30% 35% Tools to monitor health goals/biometrics (e.g., BMI/weight loss, cholesterol levels, blood pressure) 23% 28% Exercise programs either on-site or discounts for local gyms 22% 40% Programs, counseling or therapies to help with mental health issues 20% 24% On-site health clinic available for routine visits 19% 31% Financial incentives for focusing on your health and wellness 17% 35% Health risk assessment 15% 30% Healthy food or snack options at the office 13% 41% Corporate-sponsored events (e.g., walks, runs, bicycle races) 12% 27% Contests and opportunities to win prizes for health-related activities 12% 20% A wellness coach to offer guidance and encouragement to help you achieve your health-related goals 11% 24% Education on healthy behaviors (e.g., newsletters, communications, lunchtime lectures) 10% 22 % Programs to stop smoking 10% 15% An app that can help you set wellness goals, measure progress and access information 8% 19% Ergonomic workstations (e.g., standing desks, adjustable workspace furniture) 7% 29% Programs for substance or alcohol abuse 5% 10% Don't know 4% 11% None 9% 20% Global 16 The Aegon Retirement Readiness Survey 2018

17 Part 4: Living and aging in good health and with dignity With health and money topping the list of retirement-related concerns held by people in, the affordability of healthcare in retirement may be fueling worries. Only seven percent of people in are either very or extremely confident that their own healthcare will be affordable in retirement. Once again, this is at odds with the objective picture of global healthcare standards. The World Health Organization ranks s health care system 10th in the world 18, and s universal health coverage has been credited with contributing to s impressive longevity statistics. 21 But in achieving these high credentials, the state s funding is being stretched. In 2016, 84 percent of s health spending was publicly-funded, which is generous compared to other countries covered in the survey. 22 As s health service deals with an increasingly aged population, the cost of care is increasing. spent 5.7 percent of GDP on healthcare in 1990, increasing to 8.2 percent by 2008 and jumping to 10.9 percent by Chart 17 Just seven percent of people in are confident that they will be able to afford their own healthcare in retirement Not at all confident Global 3% 14% 41% 30% 5% 8% 12% 27% 36% 15% 6% 5% Not very confident Somewhat confident Very confident Extremely confident Don't Know Feeling confident about the affordability of retirement forms part of the desire to be able to age with a sense of certainty, autonomy and comfort, and is of particular importance for individuals to remain in their home as they get older. Aging in place is of at least some importance to 92 percent of people globally, and 83 percent in. Chart 18 The majority of people in say it is important to remain in their own home as they get older Not at all important 10% 3% 34% 28% 21% 4% Not very important Somewhat important Very important Global 5% 22% 35% 36% 1% 2% Extremely important Don't Know 20 World Health Organization, Measuring Overall Health System Performance for 191 Countries, The Guardian, Which country has the world s best healthcare system?, OECD, Health at a Glance 2017, Ibid, OECD, Health at a Glance 2017 The Aegon Retirement Readiness Survey

18 However, the typical ese family home may not always be well-suited to individuals as they grow old and are less able to climb stairs, or even keep on top of household chores. Through D.I.Y. adjustments and/or new technology, homes can be developed, or devices installed to help individuals age in place. For people in, wheelchair access (49 percent), panic buttons to call emergency services (41 percent), bathroom modifications (35 percent), and ramps and grip bars (35 percent) top the list. is leading the way in developing robots to assist the elderly, from exo-skeleton robot-suits to help rehabilitation of movement through to fully functioning humanoid robots. Several experimental programs are now considered important enough to be bank-rolled by s Ministry of Economy, Trade and Industry - including robotic arms to help elderly fruit pickers to robots that can help the elderly out of bed or deliver food. 24 Only 16 percent of people in envision having robots to help with chores and just 14 percent envision having robots to provide company. Although the level of current investment means that in the future robots could be far more commonplace, people may still not be aware of all the new technologies available. Chart 19 Wheelchair accessibility and panic buttons to call emergency services top the list of features and devices people envision having added to their homes as they get old Wheelchair accessibility 18% 49% Panic buttons to call emergency services 37% 41% Bathroom modifications 35% 43% Ramps and/or grip bars 26% 35% Home security system Medical alert system to warn about changes in health (e.g., blood pressure monitors etc.) 29% 28% 33% 39% Kitchen modifications 21% 28% Age-friendly furniture 19% 37% Elevator / stair lift Robot to help with chores, medication management, communication, etc. 17% 16% 17% 21% Robot to keep me company 9% 14% Video monitoring 10% 20% Don't know / prefer not to answer None of the above 9% 8% 8% 9% Global 24 Ministry of Economy, Trade and Industry, Vision of New Industrial Structure s strategies for taking the lead in the Fourth Industrial Revolution, The Aegon Retirement Readiness Survey 2018

19 Part 5: Forging the new social contract Why do we need a new social contract? The retirement landscape is changing. As megatrends rumble on, affecting economies, political overtones and demographics, the way people live, work, and retire is in a state of evolution. The current ese social contract, constructed during the middle of the 20th century is crumbling. With this agreement on who shoulders the responsibility for funding retirement struggling to stay in place, a new social contract must be formed. This new social contract must address the need for a redistribution of responsibility in how people fund and prepare for their retirement, while ensuring that the necessary tools, resources, and infrastructure are provided. It must honor the principles of sustainability and solidarity, while providing adequate safety nets that enable people to age with dignity, avoid poverty in old age, and ensure that vulnerable people are not left behind. Achieving success depends on building new collaborative relationships based on common objectives, benefits, and trust. Who are the partners in the new social contract? Governments take center stage in orchestrating retirement systems in their countries making sure that everyone, especially at-risk segments of the population, is included. Employers help by offering workplace retirement savings and other benefits to employees. These benefits include skills training, healthcare and wellness. It should be noted, however, that ese legislation and cultural practices are already ahead of the curve globally in terms of building a new social contract, in terms of widening accessibility to pension plans beyond the corporate space and encouraging healthy practices in the workplace. Individuals must take on a more proactive role in owning their retirement security. And new social partners like academics, think tanks, industry, charities and NGOs will work more closely in public-private collaborations to share expertise, innovate, and implement solutions. Schools and financial professionals have a role in preparing individuals to understand financial matters and implement financial decisions that can enhance their retirement security. Nine essential design features of the new social contract are: 1. Sustainable social security benefits that serve as a meaningful source of guaranteed retirement income and avoid risk of poverty among retirees. 2. Continued universal access to retirement savings arrangements for employed workers and alternative arrangements for the self-employed and those who are not employed due to parenting, caregiving, or other responsibilities. This is progressively being implemented in with DB and DC schemes becoming available for the self-employed, as well as DC plans with smaller contributions for those not in work for caregiving responsibilities. These schemes must be continued, as well as widening access to pension schemes for part time and temporal employees. 3. It may not have universal appeal, but s automatic savings and other applications of behavioral economics make it easier and more convenient for people to save and invest by mandating involvement in corporate pension plans. This existing aspect helps guarantee future financial stability. 4. Guaranteed lifetime income solutions in addition to social security benefits. Education for individuals to strategically plan how to manage their savings to avoid running out of money, including a knowledge of the options to help them do so. Governments, employers and others should increase awareness of, and encourage individuals to take advantage of, opportunities to have a portion of their retirement savings distributed in the form of guaranteed income, such as an annuity. 5. Financial education and literacy so individuals understand basic concepts and retirement-related products and services. Individuals must be able to ask good questions and make informed decisions. Financial literacy must be integrated into educational curriculums so that young people learn the basics of budgeting, investing and managing their savings skills that can serve them well for the rest of their lives. 6. Lifelong learning, longer working lives and flexible retirement to help people to stay economically active longer and transition into retirement on their own terms -- with adequate financial protections if they are no longer able to work. 7. Accessible and affordable healthcare to promote healthy aging. Governments play a vital role in sponsoring and/or overseeing healthcare systems. Employers in do well here by already providing healthy work environments and broadly offer workplace wellness programs with employees perhaps as it stands taking access to these for granted. 8. A positive view of aging that celebrates the value of older individuals and takes full advantage of the gift of longevity. 9. An age-friendly world in which people can age in place in their own homes and live in vibrant communities designed for people of all ages to promote vitality and economic growth. The Aegon Retirement Readiness Survey

20 Appendix 1 ARRI methodology The 2018 ARRI is based on the sample of 14,400 workers, and has been developed to measure attitudes and behaviors surrounding retirement planning. Six survey questions (known as predictor variables ) are used, three broadly attitudinal and three broadly behavioral: 1. Personal responsibility for income in retirement 2. Level of awareness of need to plan for retirement 3. Financial capability/understanding of financial matters regarding plans for retirement 4. Retirement planning level of development of plans 5. Financial preparedness for retirement 6. Income replacement level of projected income replacement Note on the effect of increasing the number of survey countries year-on-year The first Aegon Retirement Readiness Survey, published in 2012, was based on research conducted in nine countries. A separate survey in was conducted and reported on later that year. Therefore, 2012 is regarded as a 10-country study. In 2013, two new countries (Canada and China) were added bringing the universe to 12. In 2014, a further three countries (Brazil, India and Turkey) were added increasing the universe to 15. In 2015, the overall size of the survey was maintained at 15 countries although with the introduction of Australia and removal of Sweden. In 2018, the countries surveyed remained the same as 2017, 2016 and As well as these questions, a dependent variable question is asked which is concerned with approaches to saving, for which five broad saver types have been identified: habitual, occasional, past, aspiring, and non-savers. In order to create the index score the predictor variables are correlated with the dependent variable to obtain a measure of influence (known as an R value). The mean scores of the predictor variables are computed and each mean score is multiplied by its R value. The results are summed and then divided by the sum of all correlations to arrive at the ARRI score. Australia *** Brazil** Canada* China * 1 France Germany Hungary India** The Netherlands Poland Spain Turkey** UK US 1,000 per country*** 16,000 Total survey respondents * Added 2013 ** Added 2014 *** Added In China 2,000 surveyed in total 900 Workers 100 Fully retired people 20 The Aegon Retirement Readiness Survey 2018