Post-retirement solutions

While individuals, asset managers and governments across the developed world have long focused on retirement planning – i.e. saving and investing for the golden years – surprisingly little attention has been paid to decumulation planning.

As life expectancy lengthens and expected retirement spans extend, the importance of planning how to deploy accrued savings to support retirement has never been more acute.

How to invest while in retirement

How should retirees in Hong Kong invest during retirement given lengthening life expectancies and the increasing risk of higher inflation?

In January 2018, Schroders undertook a study of Hong Kong residents’ views of investment, savings and spending as they look towards retirement. The Hong Kong Retirement Research is based on interviews with 700 people, from those who were eight years before their retirement to those retired.

In the video below, Lesley-Ann Morgan, our Global Head of Defined Contribution and Retirement, shares some of the valuable insights from this latest research and highlights three key lessons to help with those who are starting to think about retirement and also those who have recently retired.

Schroders’ undertook a study of how retirement saving are utilised in markets across the world. We found that no market – including Hong Kong – has yet solved the puzzle of the most appropriate post-retirement investment solution.

A common thread across these markets is the conflicting objectives savers face and the fact that most participants have not contributed enough to their defined contribution pension plans.

Lengthening life spans complicate retirement planning

With elderly populations growing and individuals living longer than ever in Hong Kong and across the developed world (see Figure 1), there is growing awareness that most individuals are not saving enough to meet their needs in what is likely to be a longer-than-expected retirement.

Figure 1. Life expectancy has steadily risen, with Asia leading the globe

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, custom data acquired via website.

Asia leads global growth in post-retirement populations

As healthcare improves and life expectancy continues to rise, old-age dependency ratios1 are rising across the globe.

  • Asia’s old-age dependency ratio of 11.1 was slightly better than the global average of 12.6 in 2015.
  • This is expected to change by 2050, when the region’s ratio is forecast to reach 28.4, eclipsing the global average of 25.6.
  • Hong Kong’s situation is particularly acute, with its old-age dependency ratio estimated to more than triple from 20.6 in 2015 to 64.6 in 2050 (see Figure 2).
  • This will leave Asia home to an aggregate old-age population that exceeds that of the rest of the world combined (see Figure 3).

These point to a pressing need for governments, financial institutions and individuals to prioritise post-retirement planning.

Figure 2. Hong Kong tops Asia and global old-age dependency

*Old-age dependency ratio = ratio of population aged 65+ per 100 population 15-64
Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, custom data acquired via website.

Figure 3. Asia’s old-age population to exceed the rest of the world’s by 2050

Source: United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects: The 2015 Revision, DVD Edition.

Retirement planning considerations and risks change over time

When thinking about post-retirement planning, we find four key “known unknowns” that individuals need to take into consideration:

  1. How long will I live?
  2. How much will things cost in the future?
  3. How much income will my investments generate?
  4. What goods and services will I consume?

And the answers to these questions are moving targets. As Figure 4 illustrate, the risks they represent are not static but actually shift over time. For example:

  • Returns – The value of a defined contribution pension will likely be largest in the years immediately preceding and following retirement, making it most susceptible to market volatility at this time.
  • Inflation – Inflation, which has ranged from about -2% to about 8% in Hong Kong over the past 10 years2, is of more concern in the early years of retirement – when a retiree faces decades of inflation and a shrinking asset base – than it is 20 years into retirement.
  • Longevity – Longevity risk, the risk of outliving one’s sources of income, increases with age as it is more likely that an 89 year old will reach the age of 90 than it is for a 65 year old.

Figure 4. The significance of retirement risks change over time

Source: Schroders. For illustration only. February 2015.

With two centuries of experience, US$520.6 billion in assets under management and 4,100 investment professionals worldwide, Schroders is a truly global investment partner. This includes more than 45 years in Hong Kong, where we understand that employers are concerned about their employee’s post-retirement welfare.

There is growing recognition that simply relying on a cash lump sum in retirement will not meet retirement funding needs. We see an opportunity for employers and pension scheme sponsors to work with an investment partner, like ourselves, to implement well designed investment solutions that address their employees’ key risks in retirement and help to deliver income security in the face of uncertainties such as longevity risk, inflation and the unpredictability of returns.


1 Old-age dependency ratio = ratio of population aged 65+ per 100 population 15-64
2 Bloomberg, accesses 5 June 2017. Monthly year-on-year inflation for the 10-year period troughed at -1.6% for 31 August 2009 and peaked at 7.9% on 31 July 2011.

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Our business is structured around a number of strategic capabilities, which combine to meet a variety of client requirements. Please visit the Strategic Capabilities - Retirement page to discover how we help our clients improve their retirement journey.

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