On a recent trip to meet colleagues and clients in Hong Kong, I was struck by the dynamic society and engaged, ambitious workforce making it one of the world’s most prosperous economies. Will the future of Hong Kong’s retirees shine as brightly?
The question is important in today’s landscape, with the spectre of an ageing society looming over us all. Yes, there’s good news in that the people of Hong Kong enjoy relatively high personal savings rates. However, low interest rates have made it difficult to get good returns on savings, while many assets are parked in Hong Kong real estate and bank accounts.
A little over 20 years from now, there will be one elderly person aged 65 or older for nearly every three people in Hong Kong. That points to a smaller workforce and potential economic slowdown. The cost of living in Hong Kong and its property market inflation have been rising, while health care costs are rising even faster.
This demands action. Fortunately, the government is taking some steps. Launched in April, the Default Investment Strategy improves on the Mandatory Pension Fund scheme, and is a more viable retirement-planning tool for employees.
However, long-term prospects of an ageing population unable to comfortably retire remain – and are not unique to Hong Kong. The World Economic Forum estimates a current retirement savings gap of some US$70 trillion worldwide, topping US$400 trillion for leading pension services by 2050. Here are four ways to change things around:
First, spur a consumer revolution in financial fitness. It’s time to turn saving into a fashionable consumer experience rather than a slog through financial services – just as the 1980s fitness revolution made exercise so appealing. Presenting saving as achievable and interesting through simplified language, useful tools and the ability to track progress in real time – think of the Fitbit or Apple Watch – could create the same explosion in the savings industry that we’ve seen over the past several decades in fitness.
Second, help people know what “good” looks like. Individuals bear increasing responsibility for their own retirements. Giving them access to smart tools, default options and expert guidance to recognise good investment products and choices will spur them to action – and success.
Third, design smart systems to ensure adequate savings. Given the many things competing for an individual’s salary, voluntary contributions to long-term savings may never be enough. In fact, the pension systems among the highest-ranked in terms of adequacy, sustainability and integrity (according to the annual Melbourne Mercer Global Pension Index) are designed to make saving contributions compulsory by individuals and by employers on behalf of employees. Systems can be designed to require individuals to take pensions as a lifetime annual income, thus improving financial security throughout old age.
Finally, redefine work and retirement. Firms that retain valuable employees longer will enjoy a competitive advantage in the war for talent. This may mean raising or even eliminating set retirement ages to reflect longer lifespans. It would also improve government pension systems’ solvency. Meanwhile, policy reform around retirement age may spur positive changes in investment algorithms, strategies and fund management.
While Hong Kong has a head start on many countries that also face the long-term peril of the pension savings gap, it will take the “triple play” of government, business, and individual commitment to ensure a bright tomorrow. It can be done.
Julio Portalatin is president and chief executive officer of Mercer