HSBC retirement report: onus now on individuals to prepare

World Finance speaks to Michael Schweitzer, Global Head of Sales and Distribution at HSBC to discuss what its latest report means for pensioners

January 20, 2015

Bleak news for the world’s savers: the long-term impact of the global economic downturn will be felt for many decades, according to a new report by HSBC. Despite encouraging signs of recovery, the longer-term impact of the crisis will cause waves for millions of people who have weathered the storm by raiding their retirement funds and amassing debt. World Finance speaks to Michael Schweitzer, Global Head of Sales and Distribution at HSBC, to discuss the report’s implications.

World Finance: Well Michael, is it as depressing as it sounds?
Michael Schweitzer: It’s not as depressing as it sounds, provided that people take the necessary action to start to address the issue.

Of particular importance is a UN survey that basically said that the population is ageing at a rate that is unprecedented in history; and by 2050 they expect a tripling of the population of people who are over the age of 60. So the problem is very real, and isn’t going away any time soon.

World Finance: And can we rely on governments to pick up the slack?
Michael Schweitzer: The opposite is happening, actually. Governments are pushing to reform pension laws to put more onus on the individual to find ways to prepare for their own retirement.

Governments are pushing to reform pension laws to put more onus on the individual

World Finance: These figures are very alarming; are we moving towards a greater global poverty rate?
Michael Schweitzer: I think it’s one of those things where people need to take action and understand what’s going on. Certainly states’ budgets are stretched; they can’t do the things that they used to do, and we’re all very privy to that. We’ve seen what’s happened there over the past six or seven years.

Interestingly, 66-67 percent of pre-retirees today are concerned about running out of money in retirement, or simply having enough to live on in retirement. Despite that, 40 percent of those individuals either stopped or significantly reduced saving over the last five or six years; creating a situation, as you mentioned, where millions of people are facing potential retirement with shortfalls as much as 25 percent of what they may have expected before the downturn.

World Finance: Do you think the problem is maybe a lack of confidence in the pension system? For example, lots of civil servants are having their pensions cut?
Michael Schweitzer: People don’t understand what it is that they actually need for retirement. And that uncertainty is creating the discomfort for a lot of people.

It is one of those difficult first steps to take. I always use going to the dentist as an example: people don’t go to the dentist because they’re afraid of the pain that will come through the visit. Yet deferring that visit, the pain can be much worse than it would be if you tackled the issue head on today.

And certainly it’s not in the same level of significance, but it highlights the issue of dealing with the problem today, and starting to think about what you need to do for the future.

World Finance: Perhaps it would be better for people just to buy a house, rather than pay into a pension. Is that the way we’re going?
Michael Schweitzer: Many people think about pensions as that thing that companies or states contribute to, that they then get to draw on when they retire. But there are certainly lots of opportunities for people to put money away today: to understand what they need to save to create a retirement income in the future.

And you’re right: many people are looking at property as a potential income source in retirement. Two-thirds of pre-retirees said that they’d consider a property as a means of generating retirement income; as well as cash deposits, pensions was another area.

But it doesn’t diminish the importance of people taking action on their own, to put money aside for retirement.

World Finance: By 2016, all UK companies will have to arrange a pension for their employees; will this have much of an impact?
Michael Schweitzer: What the states are saying there, I think, is: ‘We need people to take more ownership of their futures. Because we’re just not sure what we can deliver.’

And this is a trend that’s been across the world. There’s a lot of variance between countries. The people of France, as an example, are the most uncomfortable with their future, and yet they have one of the most significant pension programmes in the world today.

[T]here are certainly lots of opportunities for people to put money away today

World Finance: So what can people do to avoid this pension trap?
Michael Schweitzer: First and foremost, it’s never too late to start saving. People have to recognise that.

Now, we recommend that people – if they can – start saving by the age of 30 for retirement. That time series does have a significant impact for the future. But taking that first step to just have any kind of plan – to do something, is better than doing nothing.

So the first thing we say to people is, take stock. Understand what it is that you need.

The second step that we tell people they should take is to understand that there are unexpected things that are going to occur throughout your life. Part of having a plan is understanding how to manage those unexpected occurrences.

We’re coming out of, obviously, a pretty significant downturn. We’re now six years in the rear-view mirror. But that hangover, as you mentioned at the outset, is still there. So people need to think about how they refill the pot.

Finally, wrapping all of that in a relationship with a trusted, professional advisor, who can really help you understand what you might need to do to achieve that goal, is the final step that we think people should take.

World Finance: Finally, from a systematic, economic perspective: people are going to be working a lot later in life. Obviously this will have a knock-on effect, like graduates being out of work longer. So what other structural consequences can we expect from the pension crisis?
Michael Schweitzer: In previous reports that we’ve issued, we talk about the fact that many people will be supporting their children longer, and children will be supporting their parents at some point in time.

All of that’s exacerbated if people don’t plan for the future. So it’s critical again – kind of stepping back to the simple steps – take stock of where you’re at, understand what it is that you need to do to change that future. And even a little bit goes a long way.