Failing Government Pension Systems Fuel Pessimism About Retirement Security

Countries with mandatory defined contribution systems most optimistic

DES MOINES, IA, June 11, 2003 -- Consistent with recognized fears of governments, demographers and retirement services experts, the Principal Financial Group Global Financial Well-Being Study^SM reveals that workers in countries with traditional, pay-as-you-go defined benefit retirement models feel that their systems will be unable to assure them a secure financial future. However, countries that have enacted pension reforms, and that rely less upon antiquated government-run defined benefit pension systems, generally have populations with a far more optimistic outlook about achieving a financially comfortable retirement.

"The economic difficulties of the past few years have brought a great deal of attention to retirement issues but even as the world economy turns around, it will only lessen the severity of what is essentially a demographic problem," said Norman Sorensen, president, Principal International, a member company of the Principal Financial Group. "Economic growth without pension reform will not be enough to provide comfortable retirements to most people," added Sorensen.

In many of the survey countries, people know that the system is failing, and that their future well-being will increasingly fall upon their own shoulders. In countries with aging populations and outmoded government retirement systems, such as France and Germany, many workers expect their standard of living to go down after they stop working and expect their retirements to be less financially secure than that of their parents' generation. Unfortunately, although people are aware that their governments will not be able to support them in their retirement years, they have yet to take the steps necessary to ensure themselves a secure financial future.

Now in its second year, the Principal Global Financial Well-Being Study is the most comprehensive multi-year survey of international financial well-being and retirement security, covering more than 5,000 people in 11 countries, including Great Britain, Germany, France, Italy, Japan, China, Hong Kong, India, Chile, Mexico and Brazil. RoperASW conducted the survey, and Matthew Greenwald & Associates helped develop the questionnaire and analyzed and evaluated the results.

Not Everyone Is Discouraged

The Principal Global Financial Well-Being Study reveals that workers around the world have very different views on whether the government, their employer, the individual or the family are the most responsible for their retirement.

"In contrast to the discouraged outlook of the French, Italians, Germans and others who depend on outdated defined benefit retirement systems, people in countries with reformed defined contribution pension systems, such as Hong Kong, Chile and Mexico, are relatively optimistic," said Sorensen.

The attitudes toward future financial well-being have much to do with the pension system under which one lives.

• Reflecting confidence in their reformed pension system, 78 percent of Chileans, 82 percent of Hong Kong Chinese, and 83 percent of Mexicans expect their standard of living in retirement to be better or about the same as it is today.
• In contrast to their nearby neighbors in Chile, only 61 percent of Brazilians expect their standard of living in retirement to be better or about the same as it is today.
• Consistent with recent robust economic growth in their countries, Chinese (81%) and Indians (82%) are more likely to say that their standard of living in retirement will be better or about the same as it is now.

Meanwhile, most of Europe's government-run pension systems have left their populations with little confidence in their future financial well-being.

• Over half of those surveyed in France (56%) expect their standard of living to be worse in retirement than it is now.
• More than a third (34%) of Germans and more than a quarter of Italians (28%) and British (25%) also think they are facing a worse standard of living in retirement.
• A majority of Japanese participants (53%) also feel that their standard of living in retirement will be worse than it is now.

"U.S. workers are among the least content with their current financial well-being, while they are the most likely to calculate how much money they will need in retirement. Perhaps this has led to greater concern for their long-term financial future, as well," said Larry Zimpleman, executive vice president, Retirement & Investment Services, The Principal. "People cannot plan for their future if they have not done an honest assessment of their needs."

Among all global survey respondents, an average of only 24 percent have tried to figure out how much money they will need to have saved for retirement.

Uncertainty Strikes Europe

The Principal Global Financial Well Being Study found widespread resistance to taking more personal responsibility for securing a financially comfortable retirement, even amongst people who think their governments will not be up to the task.

"There is a group of entitled populations out there --people who think that their governments have a great deal of responsibility for their retirement--who realize that the government pension systems are failing, but worse, aren't doing anything about it themselves," said Matt Greenwald, CEO of Greenwald & Associates.

• For example, when asked how much responsibility they think government should have for ensuring a financially comfortable retirement, 67 percent of French, 74 percent of Italians, and 49 percent of Germans answered a great deal of responsibility.
• But, only three percent of French, two percent of Italians and one percent of Germans interviewed said the government is doing very well at providing them with a secure retirement. Even in China, with its socialized retirement system, 64 percent of those interviewed thought the government has a great deal of responsibility for their retirement, yet only 14 percent thought the government was doing a very good job at it.

Furthermore, few are very confident that they will, in the future, receive the level of benefits from government that retirees receive today.

• Fewer than one in 10 in Italy (9%), Great Britain (6%), France (4%), Germany (3%) and Japan (4%) are very confident that the government will continue to provide an equal level of benefits to those received by retirees today.

Respondents from countries that rely on government-supported retirement systems admit that they are not doing enough to ensure themselves a financially secure retirement.

• Only 26 percent of Germans, 25 percent of Italians, 15 percent of French and 11 percent of Chinese think they are doing very well in ensuring that they have a financially secure retirement.
• Nor do they think they should take personal responsibility for a comfortable retirement. Fifty six percent of Frenchmen, 61 percent of Italians, and only 26 percent of Chinese think they should take a great deal of personal responsibility to ensure a comfortable retirement, compared to 70 percent of the Study's total worldwide respondents.

"Countries that have enacted defined contribution pension reform, such as Chile, Mexico, Hong Kong and the U.S. are in much better shape, but they still need to make adjustments to their systems. Countries that continue to rely on traditional defined benefit retirement models will be unable to support their aging populations going forward," said Sorensen. "Unfortunately, pension reform is not easy, as recent protests in France have shown. It's a challenging situation that will only become more critical, unless government, corporations, and individuals, take necessary steps to ensure future financial well-being."

The Principal Global Financial Well-Being Study 2003 Executive Summary (PDF:438KB)

About the Principal Global Financial Well-Being Study

The Principal Global Financial Well-Being Study is a comprehensive survey, conducted by Roper ASW, that compares retirement confidence, organized saving, employee benefit coverage and benefit programs among 5,000 employees in eleven countries: Great Britain, Germany, France, Italy, India, Japan, Hong Kong, Brazil, Mexico, Chile and the United States. Matthew Greenwald & Associates provided input into the questionnaire and analyzed the results.

For more information on the results of the 2003 Principal Global Financial Well-Being Study, visit the Principal Financial Group newsroom at http://www.principal.com/about/news/press.htm.

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