50% of HNW and Ultra HNW do not have retirement plan in place

| 24 Oct 2017

Almost half of all High Net Worth (HNW) and Ultra High Net Worth (UHNW) respondents do not have a retirement plan in place.

This is according to a recent survey by Transamerica Life (Bermuda) and Asian Private Banker titled “Exploring High Net Worth Retirement Solutions - 2017 Report”. The survey further revealed that amongst those who have planned for retirement, a significant 73% are not confident or only somewhat confident about their current plans. This is despite what industry experts term ‘the largest ongoing transition of wealth in history’, as Asia’s first generation of billionaires and multi-millionaires prepare to pass on upwards of US$300 billion to the next generation by 2040 (UBS-PwC Billionaires Report, 2016).

As affluent families navigate today’s unpredictable financial markets, family wealth transfer and succession planning are the top two factors that keep them awake at night, followed closely by immediate family crises. With these concerns in mind, approximately 65% of clients identify savings as their primary source of retirement funds, followed by investments (47%) and provident funds (17.7%).

Turning to life insurance as potential retirement tool

In addition to these financial tools at their disposal, Asia’s wealthy have begun turning to life insurance as a potential retirement tool to achieve financial security and maintain one’s lifestyle, while maximising efficiency in legacy planning.

Notably, three out of five HNW and UHNW individuals surveyed said they were keen to purchase life insurance for retirement purposes. Across the range of product benefits that respondents look for when considering life insurance as a retirement solution, a high coverage amount emerged top (73%), followed by a regular income pay-out (64%) and the death benefit (45%).

“Over the last few years, HNW and UHNW individuals have grown to appreciate the value of life insurance as a low-to moderate-risk wealth tool that can deliver both protection and potential returns,” shared Transamerica Life Bermuda’s President and Chief Executive Officer, Marc Lieberman. “This is closely linked to the benefits that life insurance policies can offer, such as asset diversification, potential for additional leverage and long-term cash value that is accessible when needed.”

Four key factors impacting retirement planning

The survey revealed four key factors that impact client priorities and perceptions toward retirement planning:

Occurrence of trigger events
Whilst Asia’s HNW and UHNW individuals believe that retirement planning should be high on the agenda, they do not see it as an immediate priority or reason to initiate discussions with their wealth managers. In fact, most realise the need to start planning for retirement only in the case of key trigger events, with a family death or serious medical issues being the event most likely to lead to a conversation on the topic. This is followed closely by the birth of a child or succession planning, then significant business challenges.

Evolution of retirement priorities
One’s retirement priorities constantly evolve through different phases in life:

- HNW and UHNW individuals in their 30s are primarily concerned about their immediate family, and rising education and healthcare costs for their dependents.

- Succession and inheritance planning then becomes a priority for those in their 40s as they look to ensure that their wealth is successfully transferred to the next generation.

- Moving into their 50s, individuals’ priorities shift toward lifestyle preservation. They aim to secure viable sources of retirement income to maintain their lifestyle, participate in philanthropic activity and address their healthcare needs – the latter being the main concern for wealthy pre-retirees.

Concerns of the UHNW
Given their accumulated wealth, UHNW individuals face a different set of issues. They are less concerned about lifestyle maintenance and are more worried about potential legal complexities and bureaucratic barriers that may arise during the wealth transfer process. This is especially the case as  their wealth portfolios tend to be more geographically diverse.

Relevancy of retirement
Although relationship managers (RMs) perceive retirement planning as relevant to all segments of their clientele, they highlight it as most relevant to business executives, followed by HNW and UHNW individuals.

The Way Forward: Market Opportunities and Challenges

With assets managed by Asia’s top 20 private banks climbing by over 6 percent to US$1.55 trillion in 2016 (Asian Private Banker, 2017), it is heartening that more than two out of three clients surveyed have worked with their current RM for more than five years. 76.5% of them also shared that they trust their RMs to present solutions that fit their needs and wants.

Despite these well-established RM-client relationships, the survey suggests that there is significant opportunity for more education and discussion around retirement-based insurance solutions. More than half (58%) of RMs surveyed have not received training related to HNW retirement insurance, and 40% of them have not discussed these solutions with their clients.

“Retirement planning and life insurance are increasingly intertwined as both address the same concerns,” said Lieberman. “With growing interest in retirement-focused insurance plans, we plan to expand our training initiatives to increase distributor and customer awareness around the value that life insurance can bring.”

Life insurance industry remains a bright spark

Despite the muted market outlook, the life insurance industry remains a bright spark with considerable potential for growth. Almost 68% of all RMs surveyed have referred retirement-focused life insurance solutions to less than 10% of their clients thus far. Furthermore, more than 70% of RMs and clients anticipate that the popularity of most life insurance products will increase or remain the same over the next 24-36 months. Amongst the wide range of policies available including whole of life, term life and investment-linked, universal life remains the most popular, accounting for a significant majority (77%) of all client policies.

“As Asia continues to experience a wave of intergenerational wealth transfer in the coming years, it is key that (U-)HNW individuals actively engage their wealth managers around their changing needs and priorities,” shared Lieberman. “Planning ahead for retirement helps ensure prudent wealth management, and provides for financial security, legacy planning and lifestyle maintenance in one's later years.”

The ‘Exploring High Net Worth Retirement Solutions - 2017 Report’ was conducted by Transamerica Life Bermuda and Asian Private Banker. A total of 456 relationship managers, wealth managers, independent asset managers, brokers and clients across private banks, family offices and brokerage firms in Hong Kong and Singapore were surveyed between April and July 2017.

The report defines HNW and UHNW individuals as individuals with at least US$1 million and US$30 million in investable assets respectively, excluding primary residence, collectibles, consumables and consumer durables.

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