When thinking about your plans for retirement, you need to ask yourself a lot of questions. How much do I need to save each month? Is my employer contributing anything? Which is the best savings product for me? But, to be able to ask yourself those questions in the first place, you already need to have a certain level of financially literacy.
A taxing issue
The sad truth is that many people do not. An OECD study, for example, found that just 34% of the adults polled reached the minimum target score on financial literacy. This score dropped even further to 29% when taking digital concepts into consideration.
This is a huge problem, because planning your retirement can get complicated very quickly. Take, for example, tax rules. Different countries have different rules, so it is important that people understand how their local tax rules could impact their plans for retirement. And, keeping up with them can be hard. A poll carried out by the Transamerica Center for Retirement Studies (TCRS), found that over half (53%) of US workers polled were unaware of a tax credit that is available to certain income-eligible savers, the Saver’s Credit, which can lower their tax bill when saving for retirement.
“In addition to the other available tax-advantages of saving for retirement, the Saver’s Credit is a benefit that may reduce a person’s federal tax bill. Many US retirement savers could be confusing these tax incentives simply because the idea of multiple benefits sounds too good to be true,” said Catherine Collinson, CEO and president of nonprofit, Transamerica Institute and the TCRS.
Such a lack of financial literacy is reflected in the fact that many people are not saving enough for retirement. A study by trade body Insurance Europe, for example, found that more than a third (38%) of the people polled weren’t saving anything for retirement. When you multiply this across other jurisdictions, the problem soon starts to add up. A report by trade body, the Global Federation of Insurance Associations, for example, estimated that the annual global pension gap is a staggering USD 1 trillion and is expected to grow even further.
Spreading the word
The good news is that the financial service industry is already taking steps to address the issue. And, of course, facilitating people in building up enough retirement savings is core to Aegon’s purpose of Helping people live their best lives. The nonprofit Transamerica Institute and the TCRS have, for example, focused for many years on strengthening the US retirement system, improving financial literacy, and helping ensure that people can retire with dignity.
Staying in the US, World Financial Group, an insurance agency owned by our US business, Transamerica, is spearheading efforts to help people understand basic concepts, such as the need to begin saving for retirement as early as possible. These efforts are having tangible results: a study by WFG found that its clients answered twice as many financial literacy questions correctly (49%) when compared with the US general population (24%).
“The study shows that the knowledge WFG agents share with clients makes a positive difference,” said Todd Buchanan, WFG President.
In Brazil, our joint venture, MAG Seguros, created the MAG Longevity Institute, a non-profit that studies the socioeconomic impacts of aging and offers solutions to help people to achieve financial longevity.
The Institute also launched its Conscious Credit Handbook that outlines five pillars of financial longevity – saving right, spending wisely, earning more, investing better, and protecting capital – to help people take a responsible and sustainable approach to their personal finances.
In the UK, Aegon owns Pension Geeks, an engagement specialist that uses innovative techniques to help people understand and navigate the UK pensions and investment landscape.
“Financial terms can be confusing for many people, so it is important to keep things as simple as possible. That’s why Pension Geeks uses straightforward language, turning complex financial concepts into layman’s terms,” says Tracey Clifton, Head of Channel Marketing at Aegon UK.
Pensions Geeks provides support for companies seeking to help their employees understand their pension arrangements, including Aegon UK itself. The company hosts live shows, as well as providing written materials, animations and online Q&As.
Aegon UK also recently launched a professional development hub for its own advisors, which provides tools and advice to enable them to better keep their customers informed.
More to do
Given the scale of the challenge, industry initiatives need to be part of broader societal efforts to increase people’s financial literacy. However, as the work of our colleagues throughout our businesses show, even small steps can already help put people on the right track to save for their retirement.