Employers can get staff to start retirement planning early

IT IS troubling to read that in a rapidly ageing society such as Singapore’s, financial wellness seems to have dipped, particularly when it comes to planning for retirement.

The OCBC Financial Wellness Index 2023 released last month recorded its second consecutive fall to an all-time low of 60, with decreases in 15 of the 24 indicators, notably in “planning for retirement”. The index, which surveyed 2,000 working adults in Singapore aged between 21 and 65 in August 2023, found that the proportion who either do not have a retirement plan or are not on track with any is a worrying 79 per cent, up from 71 per cent in 2022.

Furthermore, the average age at which respondents in their 50s, who have not started planning for post-work life, stated that they would start was 60 – arguably a tad late to begin accumulating a meaningful nest egg, given that the current statutory retirement age is 63.

The problem – and this is not confined to Singapore – is that although financial planners advise individuals to start investing and planning for their retirement as early as possible in order to maximise the benefits of compound interest and ride out volatility in financial markets, most do not.

Behavioural finance provides one explanation – people have a natural, inbuilt tendency to postpone difficult financial decisions because of the brain’s inability to cope with large amounts of daily information. When faced with difficult financial choices, it is easier to avoid and postpone rather than confront and take action.

Moreover, those who are in the early stages of their working life and are just starting their families tend to be burdened with financial commitments ranging from mortgage repayments to setting aside funds for the children’s education, to the point that investing and retirement planning tend to be relegated to secondary importance.

Many among the young also believe that they lack the time and funds to do proper planning. The end result is that the majority relies on simple savings to build their retirement nest eggs. This is far from ideal – and a growing problem for a greying population that has to grapple with rising inflation, at least for the foreseeable future.

When there is insufficient investment and advance financial planning, what happens is that as retirement looms and individuals realise they have a significant shortfall in funds, the tendency is to search for quick solutions via complex instruments that offer high returns but come with plenty of risk. When these securities do not perform as hoped, large losses are incurred, and the problem is worsened.

But, as the OCBC study also found, getting proper help, whether in terms of advice or tools, had a positive impact on improving scores. For instance, almost half of the investors who sought qualified financial advice from financial institutions were on track with their investments.

In this connection, employers can play an important role by encouraging employees to start gearing up for retirement from a young age. There are, for instance, free, unbiased financial and retirement planning courses offered by the Institute for Financial Literacy. A central component of these courses is how the oft-misunderstood Central Provident Fund scheme can provide members with the financial foundation for retirement. Also taught is how one’s nest egg can be supplemented by investing and tapping into other government schemes like the Silver Housing Bonus and Lease Buyback Scheme.

Given the scale of the problem, employers should chip in to help nudge and steer their staff towards retirement adequacy and well-being.