aging societies and retirement: a ticking time bomb
TRANSCRIPT
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The Hartford Financial Services Group, Inc.
Gregory A. BoykoPresident & CEO
Hartford Life Insurance K.K.March 16, 2007
Aging Societies And Retirement:A Ticking Time Bomb
"Reinventing Retirement Asia:Enhancing the Opportunities of Aging
AARP Conference, Tokyo, Japan
Workshop 6: The Gold Power of the 50 Plus Market
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The Hartford Financial Services Group, Inc.2
Aging Societies And Retirement:Agenda
Global demographic trends
Declining workforces
Strain on government and corporate pensions
Public concern about retirement
Shifting retirement burden to individuals
Need for retirement education and credible financial advice
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The Hartford Financial Services Group, Inc.3
The Hartford Financial Services Group is an Insurance
and Financial Services Industry Leader
Honoring promises since 1810
Over 30,000 employees worldwide, over 650 in Japan
Strong insurer financial strength ratings
A.M. Best A+
Fitch AA
Leading provider of: mutual funds; annuities; life insurance and group benefits;
automobile and homeowners products; business property-casualty insurance
Growing international operations in Japan, United Kingdom and Brazil
Hartford Life Insurance K.K. is the #1 provider of variable annuities in Japan
Over 450,000 policyholders in Japan
Standard and Poors AA-
Moodys Aa3
Aging Societies And Retirement:The Hartford Has Honored Its Promises Since 1810
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10%
16%
26%
17%
25%
31%
21%
28%
34%
26%
37%
48%
0%
10%
20%
30%
40%
50%
60%
World U.S. U.K. Japan
Percent of Population over 60
2005 2025 2050
64.7
74.777.3
82.4
78.3
83.581.9
88.3
60
65
70
75
80
85
90
95
World U.S. U.K. Japan
Life Expectancies
2005 2050
People in developed countries are living longer and populations areaging. This is putting a strain on public and corporate pension plans.
Source : United Nations Population Division: World Population Prospects: The 2004 Revision
Aging Societies And Retirement:Increasing Life Expectancies
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Aging Societies And Retirement:Declining Workforces Will Strain Pensions
Worker-to-Retiree Ratios*
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2010 2020 2030 2040
U.S. U.K. Japan
Aging populations make it difficult for pension systems to providefunds for a significantly older, non-working population.
* Ratio of Workers (aged 15-59) to Retirees (60 and over)Source: Watson Wyatt Aging Vulnerability Index, 2003
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Aging Societies And Retirement:Fear of Insufficient Funds in Retirement
24%
11% 10%
35%
20% 18%
33%
42%39%
Somewhat concernedVery Concerned
Extremely Concerned
Japan U.S. U.K.
73%67%
Source: Hartford Life Insurance Retirement Survey, September 2006Base: People aged 45 and older in Japan (1,040) the US (757), and the UK (756).
The majority of people are concerned about having enough money tomaintain their standard of living in retirement, particularly in Japan.
91%
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Aging Societies And Retirement:Important Retirement Income Sources
32%
9%
23%24%
46%
57%65%
68%
43%45%
72%
31%
16%
39%
21%25%
41%
52%
35%
43%
64%
Public Pension Bank or PostalDeposits /
Investments
Work Part orFull Time
DefinedBenefit
Employer
Pension
Home / RealEstate
Life Insurance Defined Cont.Employer
Pension
Japan U.S. U.K.
Public pensions are still considered the most important source ofretirement income.
Source: Hartford Life Insurance Retirement Survey, September 2006
Q: Please rank the top three of the following sources of retirement income, in terms of each ones importance to you.(% selecting first, second, or third most important)
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47%
21%
42%
42%
30%
36%
Not too confident
Not at all confident
Japan U.S. U.K.
89%78%
51%
Yet the majority of people in Japan, the U.S. and the U.K. lackconfidence that public pension income will be sufficient.
Aging Societies And Retirement:Confidence in Public Pensions is Low
Source: Hartford Life Insurance Retirement Survey, September 2006
Q: How confident are you that your government-sponsored pension plan will provide you with sufficient income to maintainyour current standard of living? Base: Total Respondents
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14%
21%
22%
42%
51%
65%
67%
176%
0% 25% 50% 75% 100% 125% 150% 175% 200%
Australia
South Korea
China
United Kingdom
Switzerland
United States
Germany
Japan
Public Debt as a Percentage of GDP
Source: CIA World Factbook estimates
Rising Japanese Public Debt
The rise of government debt levels to 176% of GDP has contributedto widespread concern about the public pension system.
Aging Societies And Retirement:Rising Public Debt in Japan
$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0
1
2
3
4
5
6
72006*
2004
2005
2002
2003
2001
2000
$6.9
$6.7
$6.2
$5.5
$5.3
$4.8
$4.3
(US$ Trillions)
Source: Ministry of Finance, Government of Japan* As of November 30, 2006
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Aging Societies And Retirement:Responses in Japan - Higher Individual Burden
Government
Retirement age raised to 65
National health care co-payments raised to 30%
Consumption tax raised to 5%
Mandatory long-term care insurance launched
Corporate Shift to defined contribution plans
Less reliance on defined benefit pensions
The government and corporations have largely responded byreducing benefits, resulting in increased individual burden.
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Aging Societies And Retirement:Shifting Balance to Individual Responsibility
GovernmentPensions
Working inRetirement
Individual Savings& Investment
Corporate
Pensions
RetirementIncome
The burden for retirement income is shifting to individuals.
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Aging Societies And Retirement:Solutions for Individuals are Varied
Working in Retirement Delay retirement, work longer
Flexible work arrangements (telecommuting)
Individual Savings & Investment
Investment trusts, variable & fixed annuities
Supplementary health insurance products
Retirement education & investment advice
Solutions increasingly depend on individual efforts.
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5.2
17.4
36.5
70.4
110.4
0
20
40
60
80
100
120
2002 2003 2004 2005 2006
313 322357
478
600
0100
200
300
400
500
600
700
2002 2003 2004 2005 2006
Investment Trust Assets Variable Annuity Assets(US$ Billions*) (US$ Billions*)
Sources: Investment Trust Association of Japan, data as of December 31 annuallyHoken Mainichi (Daily Insurance) Newspaper, data as of September 30 annually
Aging Societies And Retirement:Retail Investment Product Demand in Japan
Strong demand for investment trusts with regular payments.
Strong demand for variable annuities with guarantees.
*Converted from Yen at $1.00 = 115
A i S i i A d R i
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Japanese have over $12 trillion in personal financial assets - 51% in cash and deposits.
Source: Bank of Japan, The Central Council for Financial Services Information, US-Japan Flow of Money Comparison, 2006 3rd Quarter
Aging Societies And Retirement:Personal Financial Assets - Idle Cash in Japan
Japan US
Other: 4.6% Other: 3.4%Cash & deposits:51.3%
Cash & deposits:13.3%
Bonds:7.1%
Bonds: 2.8%
Stocks:
10.7% Stocks: 30.8%
Mutual
Funds:14.0%
Mutual Funds:4.0%
Insurance &
Annuities:26.6%
Insurance &
Annuities:31.4%
A i S i ti A d R ti t
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Aging Societies And Retirement:Retirement Planning and Investing in Japan
Source: Hartford Life Insurance Retirement Survey, September 2006
Q: How confident are you in your knowledge and abilities with financial planning?Q: Which of the following phrases best describes your approach towards risk and rewards when you choose investments?
8% 10%
21%
53%
22%
24%
Not Too Confident
Not at All Confident
Confidence in Financial Planning
Japan U.S. U.K.
30%34%
74%
18%11% 13%
35%31%
54%
Fairly Risk Averse/ Accept SmallGain
Completely Risk Averse/AcceptMinimal Gain
Tolerance for Risk
42%48%
72%
Japan U.S. U.K.
Japanese are less confident and more risk averse.
A i S i ti A d R ti t
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Source: Hartford Life Insurance Retirement Survey, September 2006
Q: What or who do you rely on for credible financial planning advice?
Base:Total Respondents
35%
24%16% 15%
11%7%
38%
17% 18% 19%
7%
40%
18%
26%33%
23%
46%
26%
2%
13%
4%
News Media Personal
Contact
Fin. Plnr. / Tax
Acct.
Bank Rep Securities
Firm
Ins. Agent Don't Know
Where to Turn
Japan US UK
Japanese are far more unsure of where to turn for credible financialplanning advice.
Aging Societies And Retirement:Sources of Credible Financial Advice in Japan
A i S i ti A d R ti t
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Aging Societies And Retirement:Financial Assets Held By Older Generations
Nearly 80% of Japans 13.1 trillion dollars* in personal financial assetsare held by individuals aged 50 and over.
20-29
1%
30-39
6%
40-49
15%
50-59
28%60-69
35%
70 and over
15%
Source: Bank of Japan, The Central Council for Financial Services Information, 2005
Japanese Financial Asset Distribution by Age Group
*Converted from Yen at $1.00 = 115
Aging Societies And Retirement:
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Variable annuities are a great product to meet Japanese
retirement planning needs.
Guarantees protect principal
Option for guaranteed lifelong income
Tax deferral and estate planning benefits
Ability to switch funds
Diversified funds allow stable growth
Aging Societies And Retirement:Variable Annuities Suited to Older Generations
Aging Societies And Retirement:
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The Hartford's Variable Annuity Assets Under
Management in Japan (US$ Billions)
0.5 1.02.3
4.8
8.1
11.1
16.5
21.9
26.728.3
0
5
10
15
20
25
30
Mar.
2002
Sep.
2002
Mar.
2003
Sep.
2003
Mar.
2004
Sep.
2004
Mar.
2005
Sep.
2005
Mar.
2006
Sep.
2006
Dec.
2006
29.7
Aging Societies And Retirement:The Hartfords Variable Annuity Growth in Japan
Aging Societies And Retirement:
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Hartford Life Insurance promotes financial
education through:
Publications about annuities and investing
Educating the media and other stakeholders
Public opinion surveys about retirement
Seminars for customers and the public
Aging Societies And Retirement:The Hartford is Committed to Financial Education
Aging Societies And Retirement:
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Increasing pressure on public and employer safety nets
Retirement responsibility shifting to individuals
Individuals concerned, but not sure what to do
Need for financial education and investment advice
The Hartfords variable annuities are helping customersprepare for retirement
Aging Societies And Retirement:Summary: Defusing The Time Bomb