Between 2008 and 2016, the median debt-to-GDP ratio in advanced economies grew from 52% to 63%, while emerging markets saw that figure soar from 15% to 21%, according to the International Monetary Fund.
For years, the headlines of personal finance pages highlighted this financial vulnerability, detailing the stresses even well-paid individuals and families suffered when trying to pay their monthly bills, which often included spiraling consumer debts. But there seems to have been a quite dramatic shift in financial priorities.
Zurich and the Smith School at the University of Oxford surveyed 18,000 employees from across 16 countries for an authoritative new report, People protection: insights on empowering the agile workforce, which has found that the global workforce is now looking beyond making ends meet to having enough money tucked away for their later years.
For workforces in 14 of the 16 countries covered by the study, a comfortable retirement is now the primary financial worry.
In the UK, 41% of respondents said they were most worried about later life security against 27% who said that paying monthly bills was their top concern – globally the numbers are 44% and 27% respectively. That’s a startling gap between the global workforce’s two chief financial concerns.
Explanations could include the improvement in the world economy and greater public awareness of what has been termed the pension ‘ticking time-bomb’.
For example, governments around the world have made dramatic reforms, from increasing the retirement age to modifying related tax incentives, in efforts to balance pension payments with stretched public finances.
And what this data shows is that there is the potential for the industry – including advisers, financial services providers, policymakers and employers to start deactivating that bomb.
Pensions v bills
As might be expected, nearly three-fifths of the oldest workers in the sample are busy prioritising their pensions. Perhaps more intriguingly, though, planning for retirement starts becoming the financial priority when people reach their 30s and even those in their 20s are nearly as likely to worry about pensions (32%) as they are monthly bills (34%).
In the UK this increases to 37% of twenty-somethings who are already concerned about their finances in old age.
Younger people can no longer be as confident about their future entitlements, particularly from the state, as previous generations.
Moreover, employment practices are changing, with more people willing to go freelance for a better work-life balance and younger workers potentially having a less secure career than their predecessors, even after gaining a foothold in traditional, permanent employment.
All this means that people at the start of their working lives struggle to forecast their future earnings and benefits with any degree of confidence. They have far more reason than their parents or grandparents to worry about long-term welfare, so they will also be looking for solutions to that problem at a far younger age.
What is concerning here is that, despite being aware of the need for longer-term protection, the workforce is often woefully under-prepared for old age.
The survey showed that more than a third – 36% – of respondents did not hold any type of personal insurance, including personal pension products and products such as income protection to safeguard the savings process.
Employers, then, must exercise a duty of care to make sure the younger generation has the information they need in order to make informed decisions about the products available to them
. Providers need to keep innovating with flexible products that appeal to younger people early in their careers. Products that are clear and easy to engage with are key, along with flexibility to adapt to people’s changing needs throughout their working lives.
Finally, policymakers can adapt social safety nets, such as state-sponsored savings plans, that encourage workers in their 20s to take up the cover they need. They can also help to promote the importance and value of relevant protection insurance and services via appropriate endorsement.
Nick Homer is head of group risk at Zurich