Malaysian - Not Enough To Retire

The long-term impact of the global economic downturn will be felt for many decades to come, according to HSBC’s survey of 16,000 people worldwide.

A financial report by HSBC titled, The Future of Retirement, A Balancing Act on Tuesday said that 40% of them stopped or reduced their retirement savings during the downturn whether through investments (25%), cash deposits (24%) annuities (21%) or employer or personal pension schemes (19% respectively).

“Despite encouraging signs of economic recovery, the longer-term impact will cause waves for millions of people who have weathered the storm by raiding their retirement funds and amassing debt.

“This means that millions of people could enter retirement with savings diminished by a quarter or more after getting into debt or severe financial difficulty,” it said.

The report said that Malaysians were the highest in Asia (28%) to say that ability to save for retirement was impacted by debt compared to Singaporeans at 19% followed by Indonesians (24%).

“And despite signs that the global economy picked up in 2014, 32% of Malaysians feel that the recession and current economic downturn continue to blight their abilities to save for their retirement.” 

The report also said though 23% of the people around the world felt that their living standards would drop after retirement.

However, Malaysians were positive, with 58% expecting better living standards after retirement.
The report also said that two thirds (66%) of pre-retirees worldwide were concerned about not having enough money to live on day-to-day in retirement, rising to 88% in Malaysia.

“In Malaysia, women believe their retirement savings and investments will last for 11 years, but with an average retirement period of 21 years, this leaves 10 years when women will be reliant solely on any pension provision.

“Men will have enough savings for 12 years of retirement, but with a shorter average retirement period of 17 years, they will have lesser years relying solely on any pension provision,” according to the report.

It was found that 21% of Malaysian retirees felt they needed to start planning for retirement at the age of 30 or younger to maintain their lifestyle, while 5% go so far as to predict that they would never be able to fully retire from paid employment.

"With the benefit of hindsight, many retirees would have done things differently before they retired, to improve their standard of living in retirement. For example, more than two in five (45%) retirees say they would have saved more, and over half (53%) would have started saving at an earlier age," the report added.

Universal LIfe Insurance

The well-heeled in Singapore are increasingly looking at insurance not merely as a way to protect against the uncertainties of life but as a means to increase the wealth they leave behind.
Policies known as universal life insurance essentially work like regular life insurance except that they offer jumbo-sized payouts upon the death of the insured.

The allows them to leave behind a big pot of inheritance for their families.

Bank of Singapore (BoS) head of wealth planning Lee Woon Shiu noted that about 30 per cent to 40 per cent of the private bank's client relationships now have universal life insurance policies, compared with a "significantly lower" proportion just five years ago.

"People know that they can use this tool to create a large amount of wealth that can also serve as a liquidity solution. It can serve as a key- man planning solution, it can serve as a legacy planning solution, so it's very diverse in its potential uses."

 

A simplified example may help to explain how this works.

Assume that businessman Mr X - a 40-year-old non-smoker living in Singapore - has total assets of $5 million and he expects to spend about $1 million to meet his expenses for the rest of of his life.

If he does nothing, and there is no change to the value of his assets, he would leave behind $4 million when he dies.

If he decides to buy a universal life insurance with a premium that costs about $1 million but with a sum assured of $5 million, his total outlay would be $2 million, but he would leave behind $8 million upon his death.

Such policies are gaining popularity among the rich because they are flexible, so the insured person can choose what the sum assured is or the payment schedule, such as whether it is a one-time premium or regular payments.

Private banks may also offer to lend you money to pay the premium, with the caveat of pledging your assets, such as the policy itself or others, as collateral.

 

Universal Life insurance, however, does not come cheap. For example, the minimum premium for such policies for BoS' clients is typically about US$1 million (S$1.3 million).

One potential risk is that the returns from the policy may not be sufficient to cover the insurance costs and charges over the long term.

Top-ups of the premium may then be needed, failing which, the policy could lapse.
There is also the currency conversion risk involved, as policies are usually structured and denominated in US dollars.

Mr Lee said strong growth momentum in universal life insurance has been logged by BoS clients in Malaysia, Indonesia and particularly China.

The bank has also helped to arrange a policy for a wealthy client whose sum assured was as high as US$60 million, he said.

"It's a complement to what they have right now in terms of their stocks, bonds portfolio as it's a very good way to diversify the risks from the stock markets and financial markets into a very sustainable and stable option of universal life insurance," said Mr Lee.

AXA Top Insurer

With over 102 million customers in 56 countries and an employee base of 157,000, AXA is one of the world's leading insurance groups. Its main businesses are property and casualty insurance, life insurance, saving, and asset management. Its origin goes back to 1817 when several insurance companies merged to create AXA. The company is headquartered in Paris and has a presence across Africa, North America, Central and South America, Asia Pacific, Europe, and the Middle East.

In 2013, AXA as a move to increase its foothold in Latin America acquired 51% of the insurance operations of Colpatria Seguros in Colombia. During the same year, AXA became the largest international insurer operating in China as a result of its 50% acquisition of Tian Ping (a Chinese property and casualty insurer). In addition, the company acquired the non-life insurance operations of HSBC in Mexico. The AXA Group reported consolidated gross revenue of €91 billion for the year 2013.