 "A penny saved is a penny earned")
India and China have always been perceived by the rest of the world to be on a similar - if not the same - growth trajectory for decades now. But the two markets are also dissimilar in many ways, including the manner in which employees in the two nations choose to save for a rainy day post retirement.
First, the similarities. Both Indian and Chinese employees are at risk of not having enough prudent financial vehicles for saving for a comfortable retirement going by a Towers Watson survey on 'savings attitude'. Given the high rates of savings in both the countries, it is difficult to imagine a retirement crisis but there are clear risks in translating these savings into a comfortable standard of living in retirement, as they are often kept in illiquid and short-term instruments that may not provide a long-term hedge to inflation. The survey further reveals that approximately 90 per cent of workers in China and 80 per cent of workers in India expect to retire at the age of 60 or younger with only moderate reductions in their spending power thereafter.
When it comes to average annual savings as a percentage of income, there is a high ratio of 35 per cent for China and 24 per cent for India, indicating a strong savings culture in both the countries. But here are the differences. The most popular means to invest in India is via the purchase of gold or silver (64 per cent compared to 25 per cent in China) with a further 41 per cent reporting the purchase of jewellery as a form of saving (compared to 12 per cent in China).
Both in China and India, female workers are less likely to report equity-based investments as their most important form of savings and, on an average, are more reliant on traditional savings products. This reflects the common observation that women are typically more risk-averse investors.
Despite the mentality to 'save', there may be hidden risks for retirees, particularly in an environment where economic growth and wage inflation are high. For instance, the real value of savings is eroded by the use of inefficient savings vehicles. Much accumulated capital is diverted to necessities other than retirement, such as housing or child needs.
For both India and China, family support, inheritance and working after retirement aren't expected to provide later-life income by a majority. Changing family structures away from the traditional extended family compounds the problem: nearly three-quarters of the respondents in China and India agree that it will become much harder for children to support their parents.
In India, the proportion of workers who are beneficiaries of a formal retirement savings plan via either the state or an employer, remains relatively low. "Avenues such as the National Pension System will definitely attract employer attention as a sustainable retirement investment vehicle for employees going forward," says Anuradha Sriram, benefits director, Towers Watson India. "Companies are looking at innovative ways to manage talent. Enabling and supporting employees towards their retirement saving needs is a critical step in that direction."
What is also interesting is that in India 'rising living cost' is the largest risk factor to living comfortably in retirement. Housing and children's expenses (wedding and education) are the top two motivating factors for saving, for Indians aged above 35. Also, there is a strong correlation between health status and financial decisions in India as opposed to China. Indians in better health save significantly more. It is also important to note that for both the markets, men are more likely than women to report housing as their primary motivator for savings. That said, employees in China and India are likely to have some amount of resources for retirement despite the lack of formal financial products. Undeniably, the lack of such vehicles is a major cause for the high savings rates.
First, the similarities. Both Indian and Chinese employees are at risk of not having enough prudent financial vehicles for saving for a comfortable retirement going by a Towers Watson survey on 'savings attitude'. Given the high rates of savings in both the countries, it is difficult to imagine a retirement crisis but there are clear risks in translating these savings into a comfortable standard of living in retirement, as they are often kept in illiquid and short-term instruments that may not provide a long-term hedge to inflation. The survey further reveals that approximately 90 per cent of workers in China and 80 per cent of workers in India expect to retire at the age of 60 or younger with only moderate reductions in their spending power thereafter.
When it comes to average annual savings as a percentage of income, there is a high ratio of 35 per cent for China and 24 per cent for India, indicating a strong savings culture in both the countries. But here are the differences. The most popular means to invest in India is via the purchase of gold or silver (64 per cent compared to 25 per cent in China) with a further 41 per cent reporting the purchase of jewellery as a form of saving (compared to 12 per cent in China).
More From This Section
In China, the most popular investment vehicles are bank deposits, mutual funds or pension plans, insurance products and equity investments. In China, unlike in India, individuals with children report a greater propensity to invest in equities and mutual funds.
Both in China and India, female workers are less likely to report equity-based investments as their most important form of savings and, on an average, are more reliant on traditional savings products. This reflects the common observation that women are typically more risk-averse investors.
Despite the mentality to 'save', there may be hidden risks for retirees, particularly in an environment where economic growth and wage inflation are high. For instance, the real value of savings is eroded by the use of inefficient savings vehicles. Much accumulated capital is diverted to necessities other than retirement, such as housing or child needs.
For both India and China, family support, inheritance and working after retirement aren't expected to provide later-life income by a majority. Changing family structures away from the traditional extended family compounds the problem: nearly three-quarters of the respondents in China and India agree that it will become much harder for children to support their parents.
In India, the proportion of workers who are beneficiaries of a formal retirement savings plan via either the state or an employer, remains relatively low. "Avenues such as the National Pension System will definitely attract employer attention as a sustainable retirement investment vehicle for employees going forward," says Anuradha Sriram, benefits director, Towers Watson India. "Companies are looking at innovative ways to manage talent. Enabling and supporting employees towards their retirement saving needs is a critical step in that direction."
What is also interesting is that in India 'rising living cost' is the largest risk factor to living comfortably in retirement. Housing and children's expenses (wedding and education) are the top two motivating factors for saving, for Indians aged above 35. Also, there is a strong correlation between health status and financial decisions in India as opposed to China. Indians in better health save significantly more. It is also important to note that for both the markets, men are more likely than women to report housing as their primary motivator for savings. That said, employees in China and India are likely to have some amount of resources for retirement despite the lack of formal financial products. Undeniably, the lack of such vehicles is a major cause for the high savings rates.