Life Aims: Germany, France, Italy and Spain

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How do people in Germany, France, Italy and Spain think about satisfaction with their life and financial planning? The Allianz study examines personal life aims in the different countries and identifies commonalities and differences.

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Life Aims: Germany, France, Italy and Spain

  1. 1. Peoplein Germany,France, Italyand Spain.Life Aims II, 2005.
  2. 2. Index.Editorial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3About the Life Aims II study. . . . . . . . . . . . . . . . . . . . . 41 Background information on the countries in the study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.1 Demographic development. . . . . . . . . . . . . . . . . . 51.2 Economic situation. . . . . . . . . . . . . . . . . . . . . . . . . 61.3 Social security systems and reforms. . . . . . . . . . . 91.4 Media and public opinion. . . . . . . . . . . . . . . . . . . . 122 Results – Comparison of countries. . . . . . . . . . . . 132.1 Life aims: Savoir vivre or a good education. . . . . 132.2 Satisfaction with life: Spaniards lead the field. . . 142.3 Long-term financial planning and personal provision. . . . . . . . . . . . . . . . . . . . . . . . . . 162.4 Expectations of financial service providers. . . . . . 17 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Results – The situation in Germany. . . . . . . . . . . . 203.1 Life aims: Good education most frequently cited life aim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.2 Satisfaction with life: Satisfaction depends on achieving life aims. . . . . . . . . . . . . . . . . . . . . . . . . 233.3 Long-term financial planning and personal provision: in their infancy. . . . . . . . . . . . . . . . . . . 253.4 Expectations of financial service providers: Trust rather than competence? Trust and competence! 26 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 Results – Specific demographic groups in Germany. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274.1 Young adults (18 –25 years). . . . . . . . . . . . . . . . . . 274.2 From people starting a family to the “sandwich generation”. . . . . . . . . . . . . . . . . . . . . . 294.3 50-plus generation. . . . . . . . . . . . . . . . . . . . . . . . . 31Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33I Study objectives and methodology. . . . . . . . . . . . 33I.1 Methodological approach. . . . . . . . . . . . . . . . . . . 33I.2 Rating scale used. . . . . . . . . . . . . . . . . . . . . . . . . . 34I.3 Type of analysis used. . . . . . . . . . . . . . . . . . . . . . . 34II Macro-economic data for the four countries Germany, France, Italy and Spain. . . . . . . . . . . . . 36II.1 Demographic development. . . . . . . . . . . . . . . . . . 36II.2 Economic situation. . . . . . . . . . . . . . . . . . . . . . . . . 36II.3 Social security systems: Organization of pension systems. . . . . . . . . . . . . . . . . . . . . . . . . . . 37III Survey results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Imprint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
  3. 3. Life Aims II, 2005: Editorial.Editorial.Dear Readers, This new Life Aims study is a continuation of our research first embarked upon whenAs we grow up, each and every one of us Allianz carried out its first study of the lifedevelops life aims which influence how we aims of people in Germany in 2004. Thislive our lives. These may change a little over time we have cast the net wider to take intime, depending on what turns life takes, the views of people living in a further threebut as a rule they are a stable framework European countries. Thus our study haswhich we depend on to guide us through become more international, and the result-life. This study explores these life aims and ing comparisons have been illuminating.how people feel about them at this moment In addition, the methodology of the studyin time. has been honed so that we are left with a detailed snapshot which reveals the deep-Germany, Italy, France and Spain have rich seated opinions, desires and hopes of peopleand diverse cultures, so it was no surprise in our core European markets.when the survey showed that the four popu-lations have different opinions regarding The findings contain an important messagewhich life aims are most important. Yet, this to policymakers. They must continue tostudy shows something else. The countries encourage people to take responsibility forare all linked by one common denominator; setting up their own personal provisionrespondents in all four said that achieving plans for the future. Policymakers must alsothe life aim of being financially well pro- give people the necessary financial freedomvided for in old age makes them feel most to do this so that they can build up a supple-uneasy. If they analyze how satisfied they mentary pension secured by capital stock.are with their lives right now, they recog- The baby-boomers of the late fifties andnize that they have not yet done enough to sixties have little time before they reachachieve this aim, and it is becoming more retirement age.and more evident to them that it will remainunachievable if they rely on the state pen- To achieve the life aim of “financial indepen-sion alone. dence in old age”, people need and are seek- ing professional advice and help. Allianz hasNowadays, the reasons for this are well always seen itself as a business partnerknown. Birth rates have been falling for which helps its customers to solve theirmany years and medical advances have led financial dilemmas efficiently. As this studyto increased life expectancy. Consequently, shows, the challenges have become biggerthe state pension systems in their current and not smaller. This motivates us evenpay-as-you-go form, funding expenditure further to listen to our customers attentivelyfrom current contributions, are being sub- and wherever possible to offer them a com-jected to a test of strength. Clearly, they prehensive solution which is transparent andcannot pass this test. The writing is on the flexible enough to adapt as people’s situa-wall – reform is inevitable. tions change. Best regards, Michael Diekmann CEO of Allianz AG 3
  4. 4. Life Aims II, 2005: About the Life Aims II study. About the Life Aims II study. • Whether the intensive discussion about old-age provision in the German political Does money make people happy? What is the link arena and in the German media has led between long-term financial planning, personal to greater changes in the knowledge and provision and life aims? attitudes of people there than in the other three countries. • Whether the shift in attitudes which seemed to have begun when Life Aims I was carried Allianz conducted the Life Aims II study to out has also led to changed behavior con- discover to what extent people living in cerning personal provision, and if not, why Germany, France, Italy and Spain believe not. that satisfaction with life, life aims and • Whether these developments have also financial planning are interlinked. What resulted in changed expectations of financial kinds of life aims have the greatest effect on service providers, and if so, what the expec- how satisfied people are? What importance tations are. do people attach to achieving particular life aims and how likely do they think it is that Our analysis of the study brought to light a they will achieve those aims? And what role whole range of intriguing differences, not does their financial situation play in all of only between people living in different coun- this? Allianz commissioned Nuremberg tries, but also between those in different age market research institute GfK to design and groups or at different stages of their lives. carry out the study. For example, people with young families are the most satisfied with lives, although they The first Allianz Life Aims study, published generally have little disposable income. in January 2004, polled only people living However, when we look carefully at this in Germany. By contrast, the Life Aims II group we can see that the extent to which survey, conducted between June and August they have planned their finances has clearly 2005, included a further 1,000 people in influenced the extent to which they have each of the countries France, Italy and been able to achieve their life aims and by Spain. default also affected how satisfied they are (more analysis of the results from Chapter 2 We wanted to know: onward). • How prepared people in these four countries are for a demographic change which is set to This document summarizes and presents push the current pay-as-you-go financed the most important results in the chapters social security system to its limits. entitled “Results – Comparison of countries”, • What people think about the reforms which “Results – Germany”, and „Results – Specific are necessary and about the changes to how target groups”. The special chapter entitled responsibility for social welfare is divided „Background information on the countries between the state and themselves. in the study” contains a brief synopsis by Allianz economists of the demographic, economic, political and media climates of the four countries where the survey was carried out. Further information on this can be found in the Appendix and at www.allianz.com/lifeaims.4
  5. 5. Life Aims II, 2005: Background information on the countries in the study.1 Backgroundinformation on the countriesin the study.More than ever before, the lives of people inthe countries where the study was carriedout are influenced by the changing socio-eco- The populations of the four European countriesnomic landscape. The demographic change Germany, Italy, France and Spain will age dramaticallydue to take place over the next few decades and shrink in the next few years. The countries mostwill upset the delicate balance between the affected by this are Italy and Germany, with Spainnumber of people in gainful employment following suit somewhat later. In all four countries,and the number of those receiving pensions. the demographic change will create an intolerableAt the same time, the difficult economic sit- burden on social security systems which are currentlyuation is reducing the scope available to pol- funded primarily from current contributions on aicymakers to implement sustainable reformof the social security systems. In this period pay-as-you-go basis.of rapid change, the media pay a key role indisseminating information. ed to more than six. In Germany the popula-In order to get a better picture of how tion pyramid is currently very similar, butcrucial an influence socio-economic factors its population will age less quickly than thatactually are, we analyzed the current of Italy; in 2050 there will be five retiredsituation in all four countries. persons for every ten in gainful employment.1.1 Demographic development. Table 1: Dependency ratio today and in 2050: Number of over-65s per 100 persons agedThe best measure of demographic develop- between 15 and 64.ment is known as the dependency ratio, 2005 2050which is defined as the number of peopleaged over 65 divided by the number of Germany 28.5 51.0employable people aged between 15 and 64. France 25.0 51.4In all four countries, this ratio will deterio-rate considerably. While there are currently Italy 29.7 63.2still more than three people in gainful Spain 24.5 55.1employment for every person in retirementin Germany and Italy and indeed four in Source: National statistics officesFrance and Spain, in all four countries thisratio will fall to less than two people in The current population pyramids of Spainemployment for every person in retirement and France are slightly less top heavy, asby 2050 (see Table 1). both countries have dependency ratios of approximately 25 percent. However, theHowever, the extent to which the countries demographic change will also cause these towill be affected by these changes varies. Italy rise considerably. Spain in particular willwill be the vanguard of ageing populations. experience considerable change. In 2050,While today there are only three persons in Spain’s population will be one of the oldest,retirement for every ten persons in gainful second only to Italy. By contrast, populationemployment, by 2050 this will have increas- aging will be slightly less dramatic in France, 5
  6. 6. where the dependency ratio in 2050 is likely demographic change makes it impossible for to be similar to that of Germany. pension policymakers to continue “business as usual”. In all four countries, increasing longevity and a fall in birth rates are the principal rea- Table 3: Birth rates in 1965 and today. sons for the predicted demographic age shift. 1965 Today Life expectancy at birth is around 77 years for males and 84 years for females in all the Germany 2.5 1.4 countries, which means that in the last 40 Italy 2.7 1.3 years life expectancy has risen by about ten years (see Table 2). This trend is expected France 2.8 1.9 to continue in the next few years, indeed Spain 2.9 1.2 demographers expect life expectancy to increase by a further four years in the next Source: National statistics offices 30 years. 1.2 Economic situation. Table 2: Life expectancy of males and females at birth (years). Germany. In the last ten years, Germany’s economy 1960 Today has grown markedly more slowly than those Males Females Males Females of its European neighbors, with annual Gross Domestic Product (GDP) growth regularly Germany 66.9 72.4 75.6 81.3 below the European average since 1995. France 66.9 73.6 76.7 83.8 There are many reasons for this weak growth: German reunification, the loss of Italy 67.2 72.3 77.8 83.7 competitive advantage on the international Spain 67.4 72.2 77.7 84.0 market as a result of excessive wage rises in Source: National statistics offices the early nineties, and a somewhat inflexible labor market. However, the fall in birth rates has been even steeper than the increase in life Nevertheless, the extremely unfavorable expectancy. While 40 years ago the average economic situation Germany has suffered number of children per woman was well since 2002 detracts from some important above the figure of 2.1 needed to maintain positive changes which have taken place in the population level, birth rates in all four Germany. Many companies have hugely countries have now fallen below that. Ger- increased their competitiveness, a develop- many, Italy and Spain have very similar birth ment reflected in the fact that Germany now rates of between 1.2 and 1.4 children per exports more than any other country in the woman, but in France the birth rate is quite world. Restructuring and consolidation have a lot higher at 1.9 (see Table 3). driven down costs and increased profits. The negative effect of this unfavorable situation, Thus the demographic pressure on social however, is that private consumption is security systems is high in all of the coun- weak. This, coupled with the structural tries. Forecasts of how the age structure will crisis in the construction industry, continues develop based on life expectancy and birth to hold back domestic demand. rates are relatively precise. If anything, the speed of medical progress and the accompa- Due to this weak domestic demand, lower- nying increase in life expectancy has been ing the unemployment rate which currently underestimated up to now. And even if birth stands at 11.2 percent will be a slow process. rates recovered, the effects of this would not If we apply the rule of thumb that growth be felt immediately, as many years would of over one percent is needed to create pass before the “extra children” reached additional jobs, then regular employment working age. It is thus quite clear that the will increase only gradually.6
  7. 7. Life Aims II, 2005: Background information on the countries in the study. Public finances are already stretched, and further belt-tightening is necessary if Germany is to conform to the Maastricht Economic growth in Germany, France and Italy has criteria. Quite rightly, consolidating public been unsatisfactory in recent years, and as there is no finances is seen as an important goal of the indication that this trend will be reversed. Receipts new government. from social insurance contributions will continue to be to be insufficient, making reform of the social In the coming years it seems extremely likely security system even more inevitable. At the same that the economic situation will improve. time, however, the disposable incomes of private However, it is important to realize that households will rise only marginally, so that as far as miracles do not happen overnight; annual GDP growth of 1 to 2 percent seems realistic their finances are concerned, many people will be in the medium term. extremely limited. The positive exception to this trend is Spain, which thanks to its balanced public budget is France. enjoying not only a good economic situation but also Although the French economy has been on a healthy social security system. the road to recovery since about mid-2003, this year’s real rise in GDP is only expected to be a modest 1.5 percent or thereabouts. One of France’s main problems is high in labor market policy. Any improvement in unemployment, which the de Villepin employment brought about by a healthier government has said will be uppermost on economy is likely to be gradual at best. its agenda. The number of people in gainful employment has been stagnating for quite Public finances are another weak point. Last some time now, and although the unemploy- year the deficit ratio was 3.6 percent, and ment rate recently fell below the 10 percent this year and next year too it is forecast to mark, thus appearing less ominous, this be above 3 percent. Thus France is unlikely seems to have been primarily due to changes to be able to meet the Maastricht criteria Dr. Michael Heise, thus making them accessible to everyone, what- Chief Economist of Allianz Group and ever their income bracket. Dresdner Bank • Capital-secured nursing care insurance should be introduced gradually via a mixed model. Supple- In the next few years the new German government mentary private care insurance plans secured by needs to address the task of adapting the social capital stock would allow a greater range of care security system to the new demographic reality, so services to be provided and would also permit it is good that the issue of increasing the state social insurance contributions for nursing care to pension age has already been raised. Together remain at their current level. with measures to boost growth by increasing the productivity and employment rates, this will be • In health insurance, too, the financial situation key in helping to lessen the burden on the social could be stabilized by moving certain blocks of security system. services from the sphere of pay-as-you-go financed health insurance into a capital-covered However, these stabilization measures will not be system. Examples of areas which could be enough. In order to make the German social secu- removed are dental treatment and dental prosthe- rity system future-proof, a far greater percentage ses, accidents which are not work-related and of old-age provision must be secured by capital sickness benefit. stock: What policymakers must not lose sight of whilst• As far as capital-secured pensions are concerned it discussing reform of the social security systems is is not a question of introducing new products, but that we are running out of time, because due far more one of making the existing products more to our demographic situation we only have some attractive, making it easier to access state aid and 15 years to build up the necessary capital stock. 7
  8. 8. and a balanced budget remains but a future Spain. dream. The Spanish economy continues to enjoy strong economic growth significantly above However, forecasts of economic growth are the EU average. This is primarily driven by around 2 percent for the next few years, and private demand, as rising wages and low thus close to the average of the euro area interest rates create an advantageous climate member countries. for consumption. At the same time, the con- struction industry is booming, with public Italy. investment in infrastructure continuing to In Italy as in Germany, the economy is grow- guarantee full order books. ing more slowly than the European average. The manufacturing industry in particular is However, despite a significant rise in the in crisis. Italy’s traditional export products number of people gainfully employed, the are suffering from weak sales as the technol- unemployment rate remains relatively high ogy content of these goods is low and price at 11 percent, and the labor market situation competition high. is not set to improve in the next few years. The unemployment rate in Italy thus remains Unlike the other three countries, Spain has relatively high at 8 percent. Furthermore, managed to achieve a balanced public bud- as further structural change is expected in get for several years now. The fiscal situation industry, the number of gainfully employed provides the government with the freedom persons will tend to increase more gradually to pursue an active expenditure program as than it has done so far. well as to reform the social security system. The high level of public debt, which has In the next few years, GDP growth should soared once more to some 108 percent of continue to remain strong at over 3 percent. GDP, will also continue to impede any gov- ernment attempts at implementing policies which would foster economic growth. Consequently, growth of only 1 to 1.5 per- cent can be expected in the near future, putting Italy below the average of the euro area member countries. Andrew Bosomworth, Our social security system is a financial obligation, PIMCO portfolio manager a form of debt, that is how economists see it. Their calculation is simple: if the population continues to If German policymakers try to reduce the country’s age as the age pyramid indicates it will, economic deficit by raising taxes and reducing expenditure growth remains weak and social insurance expen- alone, without tackling the causes of the deficit by diture remains at the same high level, debt will reforming the labor market and reducing red tape, rise further. According Standard & Poor’s and the they will be making a mistake. Until the employ- World Bank, by 2050, this debt could be 200 per- ment problem is resolved, the deficit will continue cent of Gross Domestic Product (GDP). Such a to expand. They need to reverse the order of high level of debt would make German govern- priority in which they do things by implementing ment bond issues as good as worthless. The Ger- reforms first and accepting that these will lead to a man pensions authority should include this calcu- budget deficit. Once reform has taken place, the lation in the letter it sends out to the population growth which is needed to improve public about how much pension they will receive. finances will come, just as it did in the United States and Great Britain at the end of the 1980s.8
  9. 9. Life Aims II, 2005: Background information on the countries in the study.1.3 Social security systemsand reforms. The demographic change in Germany, France, Italy and Spain will affect the future stability of pay-The social security systems of all four coun- as-you-go social security systems, both healthcaretries are pay-as-you-go systems, meaning systems and pension systems.that the contributions of those currentlypaying social security contributions are usedto cover current expenditure on pensions,healthcare and nursing care. prehensive than it was in Germany, so there was correspondingly less need for peopleIn all four countries, people are provided to get to grips with personal provision plans.with a high standard of medical care and a The income threshold for state pensionscomprehensive range of healthcare services. there, for example, is a good 30 percentHowever, state healthcare systems will be higher than in Germany, meaning that theconfronted with serious problems in the group of people with higher earning powerfuture. The demographic change of the next who are above the threshold is muchfew decades, the continuing advances in smaller. In Italy, self-employed people aremedical technology, rising prices for health- also covered by the state pension system,care services and the accompanying rises in whereas in Germany the self-employed arecontribution rates will soon threaten to responsible for their own old-age provision.overload the state pay-as-you-go systems. In addition, in Italy the transition periods for the reforms already passed are very long.Where pensions are concerned, for years It is thus perfectly conceivable that unlikepeople living in the four countries included people in Germany, most of the Italian popu-in the study could be sure that when they lation are not particularly aware of howretired they would receive a pension which much the reforms will effect their personalwould almost completely secure their stan- situations.dard of living; on entering retirement theywould receive approximately 70 percent or Germany.more of their final salary. Pension adjust- The amount of money in the German socialment was usually in line with the develop- security purse is worrying. In addition to thement of wages, so everyone could see people demographic shift, high unemployment andaround them who were older than them- the consequent reduction in the number ofselves continuing to live well and share in gainfully employed persons obligated to payeconomic progress. social insurance contributions are the main causes of the difficult financial situation. InAs the countries are currently in different order to stabilize the situation, the Germanstages of pension reform and have different government has recently implemented twosocio-economic conditions, the awareness quite substantial reforms.of how necessary it is to make personalprovision for the future varies. In Spain in As part of the pension reform of 2001, theparticular, the fact that the economy is pension formula was adjusted. The effectcurrently flourishing is tending to mask of this reform is a long-term reduction inlong-term problems. Since there is also little the average gross state pension level fromdiscussion on pensions in the political arena 48 percent today to 41 percent in 2030. Toat present, the population still has scant cushion the effect, this adjustment wasknowledge of the problem. accompanied by the introduction of the Riester pension on January 1, 2002, whichThe different historical contexts also lead to provides state subsidies depending on thedifferent perceptions. In Italy, the social number of family members and the marginalsecurity system was traditionally more com- tax rate. 9
  10. 10. As a result of the 2004 pension reform, the Payments from the two schemes amount to amount of tax charged on pensions is gradu- approximately 75 percent of the person’s ally changing, and pensions will eventually final salary. In total, some 51 percent of the be fully taxable by 2040. At the same time, income in a retired household is from a subsidies for payments into pension plans state pension, 34 percent is from a company were introduced. In order to further encour- pension and 15 percent from personal provi- age people to take out pensions secured by sion. As reforms were implemented fairly capital stock, the basic pension (Basisrente recently, there are no reforms planned in the or Rürup Rente) was introduced. Contribu- immediate future. tions to this are seen as special expenses and as such are tax deductible. This year the Italy. maximum amount which can be deducted The state pension system in Italy is also a from tax is 12,000 EUR, but the figure will compulsory pension scheme financed by rise to 20,000 EUR in 2025. pay-as-you-go tax contributions, with a state pension age of 65 for men and 60 for In Germany there are now numerous old-age women. Anyone who has paid contributions provision products secured by capital stock. for at least 20 years has the right to draw a Traditional life insurance products have state pension, although to receive a full pen- been joined by the Riester pension and the sion the person must have contributed for basic pension, known as the Rürup pension, 40 years. The amount of pension received and there are also several ways of organizing depends on how long the person has paid pensions through companies. However, the social insurance contributions for and when amount invested in these products is still they began to make those payments. In the small in comparison to the state pension. future, people who have been contributing since January 1, 1996 or later will receive France. not the minimum pension but what is In France as in Germany, the state pension known as a “retirement allowance”. Cur- scheme is a compulsory pension scheme rently, the average household of retired financed by pay-as-you-go tax contributions. persons receives 74 percent of its income State pension payments are means tested from a state pension, only 1 percent from a and after 40 years of contributing the company pension and 25 percent from maximum amount someone can receive is private savings. 50 percent of the income threshold for contributions assessment. The minimum In Italy, the second and third pillars are pension is currently 599.94 EUR a month, hardly developed at all. The reforms in but is only paid to people over 65. Despite recent years, such as gradual raising of the this state pension age of 65, or 60 if the state pension age and the transition from person has paid contributions for 40 years, pensions based on final salaries to pensions the actual average retirement age in 2002 based on the amount of contributions paid was 58. are leading to a gradual decrease in the amount of state pension received. However, France has two company pension schemes, further reform is inevitable. One idea which ARRCO, which is open to all those in has been on the table for several years now employment, and AGIRC, which admits is converting compulsory golden handshakes only those in managerial positions. The (Trattamento a Fine Rapporto) into a pension amount of pension received is determined product secured by capital stock. However, by the level of contributions paid, which policymakers appear to be continuing to is converted into points, and the schemes are hold off implementing this. financed by contributions from employees and employers. In 2004, personal savings plans for old age were introduced. Payments into these plans are currently tax-free with a generous upper limit.10
  11. 11. Life Aims II, 2005: Background information on the countries in the study.Spain. 1.4 Media and public opinion.In Spain, the state pension accounts for 92percent of retirement income, while both The media influence people’s attitudes andcompany and private pensions are uncom- opinions and are thus taking on a decisivemon. The state pension age is 65 and the role in the development and continuation ofamount of pension received depends on the modern democracies. A comprehensivenumber of years for which the person has range of information from all media sourcescontributed and the basis of assessment. enables people from all walks of life toThis is calculated from the income liable to perceive the forces which are at work incontributions which the person received society.during the 15 years directly prior to reachingstate pension age. Although it is also pos- Example – Germany.sible to draw an early pension on reaching In Germany, a strong focus on the issue ofthe age of 60, if the person does not draw a pensions both in political debate and inpension until they have reached the age of the media has raised people’s awareness of65 and after they have paid contributions for the need to make personal provision forat least 35 years, they receive an extra retirement. Between 2001 and 2004, forallowance. example, there was extensive coverage in the television news of the condition ofDespite indications that the population is the pension system in Germany. There haveaging, in Spain there is currently no debate been times when more than half of whaton implementing reform. Relatively strong was reported about the condition of Ger-economic growth and a high level of many’s social security system, particularlyimmigration are currently concealing the on the television news, concerned theproblems which demographic change will system for old-age provision. This has raisedcause. awareness significantly and the effect has lasted. (Source: Media Tenor, September 2005).Dr. Moritz Kraemer, The ideal time for stemming the tide has alreadyStandard & Poor’s Director (Europe) passed. Thus, in addition to bold reforms of the healthcare and pension systems and policiesAging populations inevitably lead to enormous which inject vitality into the labor market, swiftburdens on public budgets. Public expenditure in consolidation of public finances is paramount.Germany, for example, will have risen by over five Surpluses must be created as quickly as possiblepercent of Gross Domestic Product (GDP) by the in order to provide enough financial flexibility tomiddle of the century. prevent the country’s economy collapsing. Hypothetical Sovereign RatingsIf no sufficient measures are implemented to (based on general government balance performance).change this course of events, for example reform-ing social security systems and increasing the AAA Assuming no change inemployment rate, then public debt will spiral out AA+ current government fiscalof control. Public debt in Germany will increase at AA policies. Standard & Poor’s AA–breakneck pace as of 2025, when demographic takes a large number of A+ factors into considerationpressure starts to become unbearable, and will A when deriving sovereignhave rocketed to over 220 of GDP by 2050. There A– credit ratings. In the veryis no avoiding the fact that such a development BBB+ long-term, prolong fiscalwill lead to concern about the country’s credit- BBB imbalances tend to becomeworthiness. Its credit ratings will go into free fall BBB– a dominant factor.and investors will demand higher risk premiums,causing the budgetary black hole to implode yet 2005 2010 2015 2020 2025 2030 2035further. Germany France UK USA 11
  12. 12. Media influence on public opinion.Strong focus on pensions raises awarenessof need for provision.80% 4 years ago Today 35% 30%60% 25% 20%40% 15% 10%20% 5%0% 0% 2001 2002 2003 2004 2005 % of media coverage on pensions Worry: Pensions Source: Media Tenor /Institute for Election Research, PolitbarometerExample – Spain.Since 1996, the proportion of reports onthe subject of pensions in the Spanish mediahas increased gradually. The press paysincreased attention to the subject of pen-sions when it forms part of the agenda forpoliticians and economic policymakers.In particular, new legislation and the reac-tions from important economic actors(e.g. Unespa, Bank of Spain) generate reports.Only a few articles offer background infor-mation, the majority are news reports. Themajority of Spanish media reports concernpension plans (PPA – Planes de PensionAsegurados), very few are about actualpension products. (Source: Media Tenor,October 2005).12
  13. 13. Life Aims II, 2005: Results – Comparison of countries.2 Results – Comparison ofcountries.What life aims do people in these countriesreally want to achieve? Who is most satisfiedwith life? And who is financially better pre- Our perceptions of countries are cliché-ridden.pared for the future and old age? We say the French and the Southern Europeans know how to enjoy life, while the Germans are more2.1 Life aims: savoir vivre or concerned with the serious things in life. But what are people in these countries really like?good qualifications?For 80 percent of French people surveyed,“Enjoying life right now” is an important life the extent to which it has been achieved.aim, coming in only slightly behind the aim Here, there is by far the greatest discrepancyof “Having my own children”. Thus it is in all four countries.probably no coincidence that France’s birthrate of 1.9 children per woman is higher Life aims.than those of the other three countries and Having a good education/training. Question 3: Now I’dthe demographic time bomb is not ticking like to mention severalso loudly here. Germany: 88% possible personal life Germany: 66% aims. Please tell me how France: 73% important these are toIn Germany and Italy, by contrast, “Having you. France: 45%a good education” is the life aim mentioned Italy: 88% Question 3a: And tomost often. In Spain, this aim is only Italy: 43% what extent would younarrowly beaten into first place by the aim say you have been able Spain: 88%of “Living healthily”. The economic situation Spain: 46% to achieve this aim soand job security seem to be the main far?concern in these three countries, so it is not Living healthily.surprising that their enjoyment of life is Germany: 80%dependent on more tangible life aims such Germany: 72%as owning their own home or living France: 74%healthily. France: 60% Italy: 77%Although achieving “Financial security for Italy: 68%the future and old age” ranks third among Spain: 73%the life aims of people in Germany and thus Spain: 68%appears to be a greater concern there thanin the other three countries, it is actually Financial security for the future/old age.deemed to be an important life aim by the Germany: 78%same percentage of people living in Spain Germany: 34%(78 percent, fifth place) and by even more France: 73%people living in Italy (86 percent, fourth France: 32%place). In France, too, a substantial 73 per- Italy: 86% Italy: 26%cent of people believe that financial securityis important, putting it in fourth place. Spain: 78% Spain: 32%In all four countries, financial securityranks first when it comes to the differencebetween the importance of a life aim and 13
  14. 14. Having my own children. Satisfaction with life. Germany: 75% Question 1: If you take a look at your life so Germany: 53% far, how satisfied are you in general with your France: 54% life? France: 35% Italy: 77% Germany: 52% Italy: 42% France: 42% Spain: 74% Spain: 50% Italy: 49% Enjoying life right now. Spain: 56% Germany: 75% Question 1a: As you see it, has your satis- Germany: 63% faction with life changed as a whole over the France: 81% France: 55% last five years? Italy: 81% Germany: 32% Italy: 59% France: 32% Spain: 78% Spain: 61% Italy: 44% All respondents (N = approx. 1,000 each country). Spain: 47% Top 2 boxes All respondents (N = approx. 1,000 each country). Top 2 boxes 2.2 Satisfaction with life: Spaniards lead the field. People in France are the least satisfied with life. Together with the Germans, they Life aims and, more specifically, their occupy last place when it comes to having achievement are closely related to satisfac- seen an improvement in their personal tion with life. The extent to which a life situation in the last five years. However, aim affects satisfaction, however, depends Germans take second place when it comes on the type of aim it is. to satisfaction with life so far, just slightly ahead of Italians. There are some life aims which are, for many people, a matter of course, for exam- In all four countries, the most important ple being in a long-term relationship or source of satisfaction with life is family and having children. Although achieving these friends, while what makes people most dis- aims increases satisfaction with life only satisfied are political and economic condi- marginally, not achieving them leads to dis- tions and financial security for the future satisfaction. and old age. The overall result concerning dissatisfaction mirrors that of satisfaction The opposite is true of the life aims “Finan- with these areas of life: the populations of cial security for the future and old age”, Spain and Germany are more satisfied with “Enjoying life right now” and “Career devel- their friends and family than those in Italy opment”. Achieving these aims has a positive and France, and they are not as dissatisfied influence on satisfaction. with their financial security. People living in Spain are more content with life than those living in the other three countries, and more of them report an improvement in their satisfaction in the past five years.14
  15. 15. Life Aims II, 2005: Interview.Different countries – different recipes for success? Observations by Dr. Dennis J. Snower, President of the Kiel Institute for World EconomicsMr. Snower, the countries where Allianz con- security in planning and do not requireducted its survey have very diverse social secu- further adjustment five years later on. Therity systems. In your opinion, which country is sustainable pension reforms initiated in Italybest prepared for the demographic change? in 1992 and 1995, which will not be fully complete for another 30 years, are an exam-That is difficult to say. If you look at the ple of how such security in planning can bepension systems, then Germany and Italy are provided. Nevertheless, such long timescalescurrently in the best position to solve demo- can result in the sense of urgency beinggraphic problems. Spain has yet to introduce forgotten.sustainable reform and France is alsostruggling to do so. The demographic change How can people themselves prepare for thesewill effect healthcare systems in a similar demographic changes?way, yet here all four countries are muchless prepared, hardly any of the necessary First of all, they need to realize that in thegroundwork has been done. future they will need to take on much more responsibility for their social welfareWhat causes the greatest difficulty in than they do now, be it regarding old-ageimplementing reforms? provision, healthcare or education. They will have to pay out of their own pockets forThe social security systems are all financed many of the things which are currentlyby contributions, which worked well when financed completely or primarily by theeconomies were flourishing and populations state. This means that many of those in lowwere growing. However, things have income brackets will have to change theirchanged since then; we now have weak spending habits and the way in which theyeconomic growth and aging populations, and provide for their financial futures. Increas-the social security systems are being pushed ingly, the consumption desires of today willto their limits. State benefits which were collide with the financial provision goals ofonce simply the norm need to be reduced tomorrow.and replaced through private initiatives.Politicians, however, find it difficult to What role do financial service providers play inrenege on their election promises and to this process?reduce benefits, which is why reforms areintroduced slowly, late, or half-heartedly. The privatization of benefits once providedAnd the fact that the electorate is skeptical by the state demands more effort from peopleabout these essential reforms makes the to provide for themselves. Financial serviceprocess even harder. providers can help them to do this. While they may not be able to take over the role ofIf there is no way of avoiding reform, then how the state, they are able to provide peopleshould reforms be introduced? with the financial tools they need to adjust to the new reality. This means that productMost importantly, politicians need to be ranges must be adapted to meet these newcompletely upfront with the electorate and requirements. In addition to long-term sav-to explain the changes needed to address ings plans for old age, for example, FSPs willthe demographic problem as clearly as they have to offer products which address people’spossibly can. Chopping and changing as we financial needs during periods of educationhave with the various pension reforms intro- or training, as well as supplementary healthduced in Germany in the past ten years only insurance schemes. The insurance industryserves to destroy the confidence of the needs to offer simple, cost-effective productselectorate completely. Reforms should be for personal provision which enable all citi-designed in such a way that they provide zens to secure their own financial futures, even if they are in a low income bracket. 15
  16. 16. Satisfaction with areas of life. 2.3 Long-term financial planning Your family, your friends and acquaintances. and personal provision.Question 2: Now I’m Germany: 72%going to list some aspects People in all the countries in the studyof your life. Would youplease tell me how satis- France: 68% believe that long-term financial planning isfied you are actually in important, but those in Germany accord it Italy: 67%each instance? just a little more importance. None of the Spain: 79% four countries are role models when it comes to personal provision, unlike Switzer- Your health care. land and the Netherlands which succeeded Germany: 45% in making pensions secured by capital stock a mainstay of their social security systems France: 52% early on (see Table 4). In Germany, however, Italy: 27% several years of debate in politics and the media about the Riester pension and the like Spain: 47% have not been completely without effect. Your time for leisure and hobbies. Table 4: Division of retirement income: Germany: 45% Proportion of pension income received from state pay-as-you-go systems and from France: 40% pensions secured by capital stock in Switzerland Italy: 33% and the Netherlands Spain: 41% State pay-as-you- Pensions secured go system by capital stock Your financial provision for the future/old age. Switzerland 42 % 58 % Germany: 28% Netherlands 50 % 50 % France: 27% Germany 85 % 15 % Italy: 20% Source: Brugiavini, Aging and Saving in Europe, 2002 Spain: 28% No less than a third of the German popula- Economic conditions. tion believe that however long they live they can look forward to a financially secure Germany: 15% old age. In France, only 17 percent of people France: 2% believe that. Furthermore, a significantly higher proportion of people living in Ger- Italy: 18% many, 35 percent, are satisfied with their Spain: 22% personal provision than their counterparts in Italy (16 percent), France (22 percent) and Political environment. Spain (24 percent). Germany: 3% By contrast, people in Spain are most opti- France: 2% mistic concerning their personal provision. Italy: 4% taly: 39 percent of those who have not yet achieved their aim of providing for the Spain: 13% future and old age believe that they will still All respondents (N = approx. 1,000 each country). be able to, while in Germany only 25 per- Top 2 boxes cent of people believe this (see Table 5). However, the sobering reality is that in all four countries, personal provision is in its infancy and the majority of respondents see no reason for satisfaction or optimism.16
  17. 17. Life Aims II, 2005: Results – Comparison of countries. Table 5: Issues concerning longevity – Considering that demographic change is Comparison of countries. inevitable and the amount of capital cover- age in social security systems insufficient, it Long-term financial planning is is obvious that providing benefits will (very) important.1 become hugely expensive for governments Germany 62% if there is further hesitation on the subject of reform. As the first Allianz Life Aims study France 49% conducted in Germany in 2004 showed, Italy 54% people significantly underestimate the extent of personal provision necessary. Spain 54% Although people are now aware of the fact I’m (very) convinced that I will still be able that personal provision is important, they are to achieve my personal provision aim. 2 still not acting on this knowledge. One rea- Germany 25 % son is that many of them simply do not have the financial means to invest in personal France 23 % provision, and another the fact that neither Italy 24 % political reforms of the systems nor the products themselves are transparent enough. Spain 39 % In terms of where their priorities lie, how- However long I live, I have made (very) ever, people are often more concerned with good provision.3 consumption rather than personal provision. Germany 33 % 63 percent of people in Germany already forgo some current consumption to provide France 17 % for the future, and a further 27 percent Italy 20 % would be willing to do so, whereas those in France, Italy and Spain are considerably Spain 26 % more reticent. I am very satisfied with my current personal Willingness to forgo some current provision arrangements.4 consumption. Germany 35 % Question 26: Have you already given up some France 22 % things in order to make personal provision for you future/your old age? Italy 16 % Yes Spain 24 % Germany: 63% All respondents (N = approx. 1,000 per country). France: 36% Top 2 boxes Italy: 32%1 Question 6b: In your opinion, is long-term financial planning important for you to achieve your life aims? Spain: 30%2 Question 6: And if you think about the future, how con- Group: Persons not yet retired vinced are you that you will be able to achieve your life aims? Responses concerning the life aim “Financial securi- ty for the future and old age”.3 Question 29: Average life expectancy is rising continually, so you will probably live longer than the generations before you. Consequently, you will have a greater need to make personal provision for your retirement. Do you think that you have already made good provision for living longer?4 Question 10.2: How satisfied are you with your current personal provision arrangements? 17
  18. 18. 2.4 Expectations of financial I know bank advisor well. service providers. Germany: 63% Germany: 60% France: 51% People need to feel that they can trust some- France: 46% one before they will talk to them about Italy: 58% their finances, and this is reflected in what Italy: 56% they want from a financial service provider. Spain: 48% Above all, customers want an advisor who Spain: 40% they know well, with whom they can form a long-term relationship, who knows their per- We have been working together for a long time. sonal situation, and above all, who is willing Germany: 68% to listen carefully to them. It is extremely Germany: 60% important that the products available are France: 51% transparent, but whether or not the advisor France: 45% also sells products from other providers or Italy: 51% has the possibility of consulting further Italy: 47% experts it is less important. In brief, the mes- Spain: 44% sage is clear: Less complexity, more trans- Spain: 42% parency and greater customer orientation! In all four countries, people still associate Bank advisor/Insurance advisor knows my financial planning with banks far more than personal situation. with insurance companies, and the expecta- Germany: 55% tions of a banking advisor are still slightly Germany: 50% higher than those of his colleagues in insur- France: 53% France: 44% ance. However, this difference can be as little as one or two percentage points. Italy: 47% Italy: 40% Spain: 42% Factors which influence satisfaction – Spain: 37% advice from a bank.Question 14: When think- Bank advisor/Insurance advisor listens carefully Bank advisor/Insurance advisor also advises oning about professional to me. products from other providers.providers such as banksor insurance companies, Germany: 76% Germany: 52%what does your satis- Germany: 75% Germany: 51%faction depend on when France: 60% France: 28%you receive advice from France: 56% France: 28%a(n) bank advisor/insur-ance advisor? Which Italy: 65% Italy: 40%aspects are most impor- Italy: 63% Italy: 39%tant to you when given Spain: 62% Spain: 39%advice? Spain: 55% Spain: 45% bank insurance Products are transparent. Bank advisor/Insurance advisor has access to further experts. Germany: 65% Germany: 64% Germany: 52% Germany: 50% France: 54% France: 53% France: 29% France: 29% Italy: 70% Italy: 67% Italy: 42% Italy: 40% Spain: 63% Spain: 57% Spain: 36% Spain: 34% All respondents (N = approx. 1,000 each country). Top 2 boxes. Results for countries as deviations from average18
  19. 19. Life Aims II, 2005: Results – Comparison of countries.Summary.There are many similarities between people’slife aims in the four countries where thestudy was carried out. A good education,financial security for the future and havingtheir own children are among the top fivelife aims in all of the countries. Similarly, ofall the life aims deemed important, financialsecurity for their own futures is the aimwhich the least people have achieved. Whatis most alarming, however, is that not only isthere a discrepancy between desire and real-ity as far as financial security is concerned;but that it is by far the greatest discrepancy.People living in Spain are most satisfied withtheir lives right now and have also seenthe greatest improvement in their personalsituation in the last five years. People inGermany and Italy, by contrast, are themost critical of how much their lives haveimproved over this time period.In Germany there is a greater awarenessthan in all the other countries of how impor-tant long-term personal financial planning is.As a result, the willingness of people thereto curb consumption now to provide for thefuture is the highest, hence people in Ger-many are most satisfied with their personalprovision arrangements. 19
  20. 20. 3 Results – The situation inGermany. Four years after the introduction of the Riester pension secured by capital stock on In the last two decades, a combination of several January 1, 2002, and after intensive debate factors has served to significantly change the socio- in politics and the media, the question is to economic landscape in Germany, not least German what extent the population of Germany has reunification, which positioned the country in the changed its attitudes to personal provision middle of an expanding European Union. Many people and whether or not this change has led to are also now worried about the economy and about changes in behavior. the security of their jobs, so even demographic change and its far-reaching consequences sometimes fade 3.1 Life aims: Good education into the background. Yet it is precisely Germany which most frequently cited life aim. will be particularly affected, since its state pension scheme is 85 percent funded by current contributions. The developments in the labor market are leaving their mark, as 88 percent of Germans say that “Good qualifications” are their key Burkhard Wilke, Executive and responsible for a business, a department or an Scientific Director of the German association knows the rule of thumb: a third of those involved works actively toward and consid- Central Institute for Social Issues ers the common good, a further third jogs along, and the remaining third has to be more or less When asked to rank twelve different life aims in carried by the others. This is actually confirmed by order of importance, people in Germany put civic the most recent survey of voluntary workers engagement last! How can that be reconciled with commissioned by the German Ministry for Family the belief that Germany is the birthplace of the Affairs: in 2004, 36 percent of the population had concept that it’s “good to belong” to a club or been working in some kind of voluntary capacity association and that the Germans donate more to for over 14 years, 34 percent were working in a charity than any other nationality? Well, the second voluntary capacity at that moment and 30 percent of these beliefs is most definitely a myth: although were not interested in voluntary work. However, in absolute terms the Germans do give a lot to the survey did provide a glimmer of hope, since charity, in terms of pro-capita giving they are at the hidden amongst the 34 percent of people who are mid to low end of the scale when compared with “co-joggers” are 12 percent who are willing to other industrialized countries. Moreover, according remain involved in a voluntary capacity in the long to a recent GfK survey, the entirety of all charitable term. donations can be attributed to just 28 percent of the German population. And although it is true Our society needs to work hard to mobilize these that there is a wealth of clubs and associations in silent reserves. The voluntary sector needs to pro- Germany, some 600,000 officially registered and mote itself as being transparent and willing to several hundred thousand more not registered, develop, policymakers should remove the red tape many of these principally exist to serve the leisure which hinders the voluntary sector, and companies interests of their members. Thus people who should not only encourage people to do their bit belong to them would hardly see their member- for society, but also act as role models. After all, is ship as civil engagement. it really necessary for every single corporate social responsibility (CSR) measure to come with a tag Yet perhaps we should look at this response in a attached detailing how it benefits the company? To different light: 30 percent of people living in Ger- paraphrase John F. Kennedy: Ask not what society many say that civil engagement ranks among their can do for you – ask what you can do for your most important life aims, and 28 percent donate20 society. money to charity. That is a start, at least. Anyone
  21. 21. Life Aims II, 2005: Results – The situation in Germany.life aim. They rank them well above “Being Importance and achievementin a long-term relationship” (80 percent) and of life aims.“Financial security for the future and old 88% Having a good education/age” (78 percent). However, their main con- 28% 72% trainingcern seems to be securing a job rather than 80% Being in a long-term relationshiphaving a good career, as only 65 percent 16% 84%believe that “Career development” is an 78% Financial security for the future/important life aim. 60% 40% old age 75% Individuality and the ability toThere was also an increased awareness of 35% 65% make my own decisionsthe necessity for personal provision, with 75% Having my own children94 percent of Germans assuming that they 20% 80%themselves will have to take on responsibil- 73% Enjoying life right now 44% 56%ity for providing for their futures. Only10 percent consider themselves to be well- 70% Living healthily 50% 50%informed about political reforms, and only 65% Career development6 percent believe that the reforms of the 49% 51%state social-security system will leave them 62% Having enough opportunity for leisureadequately provided for in the future. 45% 55% activity and personal hobbies 60% Owning my own homeThus the aim of “Financial security for the 27% 73%future and old age” advanced to third place 38% Discovering the world – travel abroadin the list of Germany’s most important life 54% 46%aims with a score of 78 percent. What is 30% Civic engagementmore, since only 34 percent of respondents 28% 72%have achieved this goal, it is here that there Poorly achieved Well achievedis by far the greatest discrepancy between All respondents (N = approx. 1,000 each country).the importance of a life aim and its achieve- Top 2 boxesment. Only 28 percent of Germans are satis- Question 3: Now l’d like to mention several possiblefied with their financial security, which they personal life aims. Please tell me how important theseconsider to be a major prerequisite for the are to you.achievement of many other life aims such as Question 3a: And to what extent would you say youowning their own homes (79 percent), a have been able to achieve this aim so far?secure future and old age (71 percent),discovering the world (71 percent), havinga good education (52 percent) and havingchildren (50 percent).Dr. Michael Eilfort, do and what that actually do. In reality, extremelyManaging Director of “Stiftung few people are making enough personal provision.Marktwirtschaft”, a market-oriented The reason for this is that in this country of wealtheconomic-policy think tank redistribution, the state is far too involved in welfare. If we want people to take on more“Our pensions are secure” – anyone who still responsibility for their own welfare, we must givebelieves this today probably still believes in Santa them the chance to do this and also allow them toClaus. Faced with massive demographic change, retain more of their income so that they are in aour social security systems are in no way future- position to do it. Since the social security purse isproof. Not only are the experts aware of this, but empty, the only way to do this is for the state toincreasingly also the general public. become less involved in welfare and focus on its real tasks. That will lead not to a loss in terms ofAnyone who wants to maintain an adequate stan- welfare, but rather to an opportunity to make thedard of living in their old age simply must take out system more dynamic, as well as vastly increasinga personal pension. Yet in Germany there is still a freedom.huge gap between what people know they need to 21

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