With the rapid economic growth seen in India and China, workers in both
the countries face challenges of increased life expectancies and post retirement life. To begin with, given high rates of saving, it is hard to envisage a retirement crisis.
However, there are clear risks in translating these savings into a
comfortable standard of living in retirement, as they are often kept in
illiquid and short-term instruments that may not provide a long-term
hedge to inflation.
Towers Watson’s Savings Attitudes
Survey (India and China) finds that approximately 90% of workers in
China and 80% of workers in India expect to retire at the age 60 or
younger with only moderate reductions in their spending power,
thereafter.
In terms of average annual savings as a%age of income, the study shows a
high ration of 35% for China and 24% for India, indicating a strong
savings culture in both countries. The most popular means to invest in
India is through the purchase of gold or silver, with a further 41%
purchasing jewellery to save. In China, the most popular investment vehicles are bank deposits, mutual funds or pension plans, insurance products and equity investments.
Despite the prevalent savings culture, there may be hidden risks for
retirees, particularly in an environment where economic growth and wage
inflation are high. For instance, the real value of savings are eroded
by the use of inefficient savings vehicles.
Also, much accumulated capital is diverted to necessities other than
retirement, such as housing or children’s needs. Changing family
structures away from the traditional extended family compounds the
problem. Nearly 75% respondents in China and India agree or strongly
agree that “it will become much harder for children to support their
parents in the future”.
These findings bring to the fore the collective responsibility shared by
government policy, employer benefit strategy and individual
investments. In India, the proportion of workers who are beneficiaries
of a formal retirement savings plan, via either the state or an
employer, remains relatively low.
Anuradha Sriram, Benefits Director, Towers Watson India said, "Secure
retirement benefits, whether mandatory or voluntary, are critical for an
employee's future. With benefit costs ever increasing, employers need
to facilitate retirement savings and raise awareness among employees by
going beyond mere provision. Avenues such as the National Pension System
(
NPS)
will definitely attract employer attention as a sustainable retirement
investment vehicle for employees going forward. In a competitive growth
environment, companies are looking at innovative ways to manage talent;
enabling and supporting employees towards their retirement saving needs
is a critical step in that direction”.
Other key findings from the survey include, in India, across age groups,
’rising living cost’ emerges as the single largest risk factor to live
comfortably on retirement. Housing and children’s expenses
(wedding/education) are the top two motivating factors for Indians above
35 to save. Strong correlation between health status and financial
decisions in India as opposed to China - those in better health save
significantly more.
The Towers Watson Savings Attitudes Survey contains data on how and why
people save, and how adequate these savings are likely to be in funding
their likely income needs in retirement. The survey sampled individuals
working for large firms (those employing at least 1,000 people) in urban
areas of China and India.
The resulting sample includes 2,261 employees in China and 2,440
employees in India. The average age of respondents is approximately 33
in both countries with around 65% of Chinese respondents and 72% of
Indian respondents being male.
Use of savings vehicles
|
China |
India |
| Bank Deposits |
82.9% |
32.2% |
| Mutual Funds or Pension Plans |
66.6% |
51.6% |
| Insurance Savings |
57.4% |
58.4% |
| Equity Investments |
51.5% |
36.7% |
| Gold or Silver |
25.2% |
64.0% |
| Property |
27.8% |
28.7% |
| Jewellery |
11.7% |
41.1% |
| Family Businesses |
10.0% |
30.9% |
