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Are you ready to face retirement?
Manu A B in Mumbai
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August 25, 2005

Do you think of life after retirement? Does it scare you? Do you dream of leading a stress-free, post-retirement life?

A study on the future of retirement conducted by The Hongkong and Shanghai Banking Corporation across ten countries, including India, sheds light on the changing attitudes of people and analyses the preparedness of people to face retirement.

For many, traditional retirement is a thing of the past. Eighty per cent want mandatory retirement to be scrapped, while just 14 per cent equate financial independence with old age.

In India, the study highlights that only 50 per cent of Indians have taken any steps to plan for retirement in the last 12 months.

A good majority of Indians feels that old age is a time to live with families, without any worries and count on their children for support and care. Indians rarely think they need to bear their retirement costs, nor do they expect the government to play a role. All generations of Indians feel that their children will bear most of their retirement costs.

Interestingly, only 29 per cent of the Indians surveyed think that they will have to bear most of their retirement costs. Yet, as many as 41 per cent believe that retirement is a time for personal challenges and risks.

While 72 per cent want to work after the retirement age, 80 per cent are against mandatory retirement.

Demographic pressures

The study covered Brazil, Canada, China and Hong Kong, France, India, Japan, Mexico, the United Kingdom and the United States, the countries which account for over half of the world's people.

"The ageing of the 'baby boomer' generation, declining fertility rates and increasing lifespan are combining to create complex demographic pressures across the globe.

The resulting changes will in many cases be very positive but they also create real challenges, not least with regard to the funding of retirement. Even in Canada, the nation our research found to be the best prepared for retirement, only 24 per cent now equate later life with financial independence," says Sir John Bond, group chairman of HSBC Holdings.

The grim reality in India

In India, less than a sixth of those about to retire in the next ten years are covered by some form of pension, and only 2 per cent of those not working in government (where pensions are generous) will be able to fund their retired lives if they cut expenses by half, according to an all-India survey done by the Invest India Economic Foundation.

The number of elderly (persons aged 60 and above), in India, is expected to increase by 107 per cent to 113.0 million by 2016.

About 34 million from the unorganised sector (or less than 11 per cent) of the estimated working population in India is eligible to participate in formal provisions meant to provide old age income security. About 90 per cent of India's workforce is not eligible to participate in any scheme that enables them to save for economic security during their old age, according to an article by Nandita Markandan in the Economic Society magazine.

India is a huge market

The first draft regulations on pension will be ready by first week of September. With the government all set for reforms in the pension sector, there will be a huge role for pension fund managers. HSBC sees this as a good prospect to guide people towards a secure retirement plan.

"HSBC sees a huge opportunity in India. We would like to play an active role in India as we have the expertise, in fund management and asset management. We have to wait and watch how things unfold, says Nicholas Winsor, head, Personal Financial Services, India.

Financial planning is essential for getting good returns on hard earned money. Private participation would help in reaping long-term benefits, he points out.

"We support market liberalisation and welcome pension reforms. These will go a long way to boost the economy. Considering the 1 billion population in India, it is a very important market for HSBC. We have a wealth of experience that we can draw on from around countries the world (e.g. Hong Kong, Singapore, the UK and the US) where private participation in pension plans is already permitted," says Winsor.

"Clearly, we need to wait for direction from the government on how private players, such as HSBC, can contribute to the Indian market. Our strategy is simply to bring best in class products from around the world and to tailor these for the local market. The study has given us some valuable insights into what customers in India are looking for in their retirement years," adds Winsor.

Global attitude towards retirement

A new vision of latter life

According to the study, 'Old age' has a much more personal and individualistic definition now: A 60-year-old may be 'old,' while an 85-year-old remains youthful. So people, especially in the West, now see retirement as a time of reinvention and a new chapter in life.

People in more affluent societies want to carry on working in retirement. Meanwhile, those in less affluent countries are more likely to want to give up work when they retire.

The study also reveals a resounding global rejection of age-based restrictions on working, with people throughout the world opposed to a mandatory retirement age and any government or corporate rules preventing older people from working in retirement if they are capable of doing so.

"In the developed world, people's willingness to work beyond normal retirement age could help to counteract some of the more negative impacts of an aging population. In the developing world, we face different challenges concerning the need to find employment for a growing population," explains Winsor.

The way ahead

The findings in the research suggest that young people are growing uncomfortable with the idea of supporting an ageing population. Their attitudes to old age and retirement in general are different from those of older people.

Says Winsor, "Preparation is most effective when it is done early, yet most young people do not prepare for their later years and underestimate their future financial needs. This is particularly true where savings are concerned. All experts agree that with any savings plan, it is funds that are invested early and for longest that add most value to a retirement scheme when it matures."

"Our survey did highlight that the retirement plans of many Indians are far more dependent on family support than in other countries. This suggests that individuals should develop more independent plans. This is similar to that old saying 'plan for the worst, but hope for the best!'" he adds.

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