Schroders Global Investor Study 2020: Heightened concern on retirement income sufficiency for HongKongers despite the rise in savings
Knee-jerk reaction to COVID-19 adds to the challenge
Hongkongers have become more wary of the amount of money they have for retirement, the Schroders Global Investor Study 2020* has found. This study of more than 23,000 investors from 32 locations globally, including 500 from Hong Kong, revealed that 45% of Hong Kong people expressed concerns over insufficient income for retirement – the highest among findings in the corresponding global (41%) and Asia (43%) surveys. The figure also means an increase of 5% from 2019.
This may explain the increase in retirement savings amongst Hong Kong people as they aim to play catch-up. The study found that they are now saving 13.7% of their current income for retirement, an increase from 10.9% in 2017 when the study first asked Hongkongers about this.
To help fund their retirement living, 44% of Hong Kong investors said payout from their personal investments is or will be their main source of regular income. The study also found that Hongkongers will stay invested in their retirement scheme to earn a variable payout (42%) or a fixed payout (41%) as sources of regular income during retirement.
However, market volatility caused by Covid-19 may have swayed Hongkongers from their long-term investment objective, with 31% of them having moved a significant proportion of their portfolio to lower risk investment in February and March this year when stock markets experienced periods of volatility, the study found.
Kelvin Lee, Head of Institutional Business, Hong Kong, commented:
“Whilst it is encouraging to see that people of Hong Kong are saving more for retirement, their knee-jerk reaction to market volatility could be pulling them back from achieving their retirement investment objective. Such reaction – whether out of fear or trying to time the market – often means missing out on the opportunities from subsequent recoveries that could come earlier than expected.”
“The current low interest rate environment is for here to stay. Overall, investors will need to face the reality that they have to take on relatively more risks than before in order to generate the income stream they need in retirement. Yet, it is important for investors to broaden their exposure to multiple asset classes so as to capture more opportunities and be better able to manage risks. Our experience tells us that staying invested and focusing on the long-term can often generate better investment results.”
This means that the recent development where MPF funds would, in effect, have room to increase their China A-share holdings to over 10% of their net asset value, could be good news for MPF members. This provides a wider opportunity set for retirement portfolios to capture growth potentials, whilst staying in a regulated environment.
Nonetheless, this may still not be enough to address Hong Kong people’s concerns of not having sufficient income in retirement to meet their daily needs. Schroders highlights the behavioural changes that may be necessary to tackle the challenge.
Kelvin Lee added:
“We understand that many tend to think about retirement investment based on their current lifestyle – what we call a ‘projection bias’. Some compare with what others are doing or plan to do – what we call a ‘herding bias’. These behavioural biases may inadvertently lead to an outcome that is not fit for purpose, or worst, coming up short on the amount they need to last them their lifetime.
“When it comes to choosing retirement solutions, investors need to think beyond risk and return, and be mindful of the time horizon. For example, members who expect to live to 100 years old or beyond may want to consider solutions that can provide a lifetime of income.”
To find out more about Schroders Global Investor Study 2020, please click here.
*In April 2020, Schroders commissioned an independent online survey of over 23,000 people who invest from 32 locations around the globe. This spanned countries across Europe, Asia, the Americas and more. This research defines people as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.
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