The Aegon Retirement Readiness Survey 2018 | 1

The New Social Contract: a blueprint for retirement in the 21st century

The Aegon Retirement Readiness Survey 2018

United Kingdom Country Report

2 | The Aegon Retirement Readiness Survey 2018

ContentsIntroduction 3

Key Findings 4

The 2018 Survey

Part 1: Megatrends and evidence of a crumbling social contract 5

Part 2: Improving individual retirement security – the role of financial literacy and auto-enrollment 11

Part 3: Potential health issues loom large as retirement concerns 16

Part 4: Living and aging in good health and with dignity 19

Part 5: Forging the new social contract 21

Appendix 22

Note: Percentages are shown to zero decimal places. Rounding percentages to the nearest

whole number may result in slight differences; for example, the percentages in some charts

summing to slightly under or slightly over 100 percent.

The Aegon Retirement Readiness Survey 2018 | 3

IntroductionThe Aegon Center for Longevity and Retirement is pleased to

present findings from its seventh annual Aegon Retirement

Readiness Survey, The New Social Contract: a blueprint for

retirement in the 21st century. This survey is the result of

collaboration with nonprofits Transamerica Center for Retirement

Studies (based in the U.S.) and Instituto de Longevidade Mongeral

Aegon (based in Brazil). This report, while specific to the U.K., is

based on research conducted in 15 countries spanning Europe,

the Americas, Asia and Australia.

Changes taking place in the U.K. and around the world are giving

rise to new pressures on existing social contracts forged during the

last century. This is forcing all of us to look differently at our plans

for achieving good health and financial prosperity in later life.

The idea of a “social contract” has been central to the way in

which people in the U.K. plan and prepare for retirement. This

contract was established between governments, employers and

individual workers, setting forth their respective responsibilities.

For decades, the U.K. has operated an enduring system of benefits

and entitlements that has helped millions of people in the U.K. to

achieve a secure and fulfilling retirement.

However, when the U.K. retirement system was created in the 20th

century, average life expectancy was far shorter than it is today.

Even as recently as 1960, the life expectancy for the average

person in the U.K. was 71 years1, just a few years past the age the

state pension could then be drawn: 65 years for men and 60 years

for women. For many years, the state retirement age has remained

constant at 65 for men, but in 1995 the government announced

plans to slowly equalise the retirement age between genders, and

as of 2018 it stands at 65 for both men and women. However, life

expectancy is increasing in the U.K., standing now at 81 years as

of 2016.2 With the aim of keeping the state pension system fair

and affordable, the government is set to increase the retirement

age to 66 by 2020, and 67 by 2028.3 Nevertheless, with people in

the U.K. potentially spending a decade longer in retirement than

previous generations, the existing retirement system is coming

under increasing financial strain. As the findings throughout this

report illustrate, it is time for a new social contract.

This report focuses on the responses of 1,000 people in the

U.K. including 900 workers and 100 retirees. It investigates the

stresses and pressures being put on the UK retirement system

and the roles the government and employers are expected to

perform. The report evaluates the retirement readiness of workers

themselves and investigates improvements that can be made to

help workers achieve the aspirations they hold for their retirement.

It investigates the growing importance of health in the realities of

financial planning, and for the first time the report examines the

issue of ageing with dignity. With more people in the U.K. reaching

their 80s, 90s, and 100s, issues around healthy ageing and

financial security are becoming ever more pertinent.

1 World Bank, “Life Expectancy at birth, total (years) – UK”. 20172 Ibid 3 Department for Work and Pensions, State Pension age timetable. May 2014

4 | The Aegon Retirement Readiness Survey 2018

Key Findings:• The Aegon Retirement Readiness Index (ARRI) measures

how prepared workers around the world feel for their

retirement. The U.K achieves a medium ARRI score of 6.0,

down from 6.2 last year. Although still towards the top-end

of the country rankings, the U.K. falls slips from fifth place in

2017 to joint-sixth in 2018.

• Increased life expectancy and reductions in government

retirement benefits (both 24 percent) are the key

megatrends people in the U.K. say are impacting on their

plans for retirement. For 22 percent, the prolonged low

interest rate environment is impacting on their plans for

retirement.

• Three-in-five (59 percent) of people in the U.K. think

that future generations of retirees will be worse off in

retirement than current retirees, ten percent more than the

average globally (49 percent). Just nine percent of people in

the U.K. think that future generations will be better off, while

22 percent think it will be about the same.

• U.K. workers expect the bulk (40 percent) of their

retirement income to come from the government

(compared to 46 percent globally). A third (34 percent) is

expected to come from their employers (24 percent globally),

and a quarter (26 percent) is expected to come from their own

savings and investments (30 percent globally).

• Asked what action the government should take to address

the growing cost of Social Security, the most common view

held by people in the U.K. (39 percent) and globally (34

percent) is that the government should increase overall

funding without having to reduce the value of individual

payments. Nine percent take the opposing view, that the

government should reduce costs by reducing the value of

individual pension payments, and a further 30 percent take a

balanced view of some reductions in individual payments and

some increases in tax.

• Forty-five percent of workers in the U.K. are saving

habitually for retirement (compared to 39 percent

globally). A further 21 percent are only saving on an

occasional basis. While 13 percent are not saving now but

have done in the past, 16 percent are not currently saving but

do intend to in the future, and five percent have never saved

for retirement and never intend to.

• Twenty-eight percent correctly answer all of the “Big

Three” Financial Literacy questions developed by Drs.

Annamaria Lusardi and Olivia S. Mitchell in 2004 and used

in this survey with their permission. This is in line with the

global average (30 percent). Those that correctly answer all

“Big Three” financial literacy questions achieve a higher ARRI

score than those that do not (7.0 compared to 6.0 among all

people in the U.K.).

• The majority of workers in the U.K. are open to the idea of

automatic enrolment, with almost two-thirds (63 percent)

finding the idea appealing (global: 57 percent). It is notable

that appeal is only slightly higher in the U.K., as unlike other

countries in the study, auto enrolment has already been fully

enacted.

• One-in-five (21 percent) of people in the U.K. are confident

that they will be able to afford their own healthcare in

retirement, in line with the global average. Women (15

percent), and those currently in poor or fair health (13

percent) are among those least confident in their ability to

afford their own healthcare in retirement.

The Aegon Retirement Readiness Survey 2018 | 5

Globalization, innovation, advances in science and technology. Our world is changing rapidly amid these and other trends. Many of these

trends are so impactful that they can be considered megatrends. Changes brought about by megatrends are already shaping societal

constructs, how people lead their daily lives, plan for their future, and, ultimately, prepare for their retirement.

People in the U.K. show slightly more sensitivity to the impact that the low interest rate environment is having on their retirement plans

(22 percent vs. 20 percent globally). However people in the U.K. are less sensitive to all other global trends. In fact, almost three-in-

ten (28 percent) of people in the U.K. say none of the global trends will have an impact on their plans for retirement, double the global

average (14 percent) and higher than in any other country surveyed.

While 38 percent globally say that reductions in retirement benefits will impact their plans for retirement, this falls to just 24 percent in

the U.K. The introduction of the New State Pension in 2016 was set up to provide a flat-rate basic pension, with around three-quarters

of the population set to be better off between 2017 and 2030 under the new scheme. However, this falls to only just over half of the

population being better off under the new system by 2050, with three-quarters of those in their 20s and 30s currently set to be between

£17,000-19,000 worse off in retirement.4 With little difference in the amount of Millennials reporting that reductions in retirement

benefits are impacting their plans for retirement (22 percent) and the U.K. average, there is potentially a disconnect between idealism

and reality.

As many people in the U.K. are concerned about the impact of increased life expectancies on their retirement plans (24 percent) as with

reductions in retirement benefits, however levels here only fall just below the global average (27 percent). Life expectancy has swelled

since the mid-20th century from 71 to 81 as of 2016.5 With the state pension age only increasing marginally to 67 by 2028 from the

1995-decreed levels of 65 for men and women, the length of time individuals are living in retirement may be surpassing the duration

they initially financially planned for.

The third trend most likely to cause an impact on people in the U.K.’s retirement plans come from a prolonged low interest rate. Over the

past decade, the Bank of England has kept rates far below the pre-crisis level of 5.75 percent (July 2007): It was static at 0.5 percent

from March 2009 until August 2016, where the Brexit vote triggered a lowering to 0.25 percent, to be reversed in November 2017 and

raised again to 0.75 percent in August 2018.6 Accordingly, this is a trend felt by many more Baby Boomers (33 percent) than Generation

Xers and Millennials (both 14 percent), the former having greater market experience in a with higher interest rates, and which may have

previously contributed to retirement saving accruals.

Part 1: Megatrends and evidence of a crumbling social contract

4 Department for Work & Pensions, Impact of New State Pension (nSP) on an Individual’s Pension Entitlement – Longer Term Effects of nSP. January 20165 Ibid, World Bank6 Bank of England, “Official Bank Rate history”. October 2018

6 | The Aegon Retirement Readiness Survey 2018

Global 49% 24% 18% 9%

UnitedKingdom

59% 22% 9% 11%

Worse o�

About the same

Better o�

Don’t know

Recognised or not, over the past 50 years, global megatrends, such as increasing lifespans, changing demographics, and more recently,

the prolonged low interest rate environment, have impacted the way governments and corporations manage retirement systems and how

social contracts operate. Continued change is inevitable, reshaping the contours of the retirement landscape in the U.K. for decades to

come and influencing how future generations save, invest, plan and prepare for retirement.

Despite relatively few people in the U.K. recognising the impact of these trends, it is a country of people who are predominantly

pessimistic about the future of retirement. Almost three-in-five (59 percent) believe that future generations of retirees will be worse off

than those currently in retirement, compared to 49 percent globally. Correspondingly, just nine percent of people in the U.K. think that

future generations will be better off (compared to 18 percent globally). There is an amalgamation of causes that could be stirring such

trepidation about the future of retirement in the U.K., from rising house and living costs causing younger generations to start saving later

and less, ageing populations and the deterioration of defined benefit schemes as a standard for pension products. However, it is those

closest to retirement who are most likely to feel future generations will be worse off, with 60 percent of Generation Xers and 65 percent

of Baby Boomers reporting thus.

Chart 2 – Three-in-five people in the U.K. think future generations will be worse off in retirement

Chart 1 – Reductions in government benefits and increased life expectancy are the most often cited global trends people in the U.K. see impacting their

retirement plans

Cybersecurity issues 6%9%

International political instability 10%19%

Volatility in financial markets 17%24%

Prolonged low interest rate environment 22%20%

Global

United Kingdom

New technologies and digital transformation 12%8%

Increased life expectancy 24%27%

Changes in labor markets 8%21%

Changing demographics 9%14%

Globalization 7%12%

Climate change 6%12%

Terrorism 8%11%

None of the above 28%14%

Urbanization 4%8%

Don't know 13%10%

Reductions in government retirement benefits 38%24%

The Aegon Retirement Readiness Survey 2018 | 7

Amid concerns about potential reductions in government benefits, increased longevity, and changes in employment trends, the current

social contract is crumbling. The U.K. retirement system represents a social contract that currently operates on a three-pillar approach.

The three pillars – Social Security (Pillar 1), workplace retirement benefits (Pillar 2) and personal savings (Pillar 3) are provided by

the partners of the social contract – the government, the employer and the worker, respectively. This contract was developed and

proliferated throughout the twentieth century to help ensure that individuals were provided for financially in their old age.

On trend with the global average, workers in the U.K. expect the bulk of their retirement income to come from the government, although

a slightly smaller portion (40 percent compared to 46 percent globally). Instead, U.K. workers expect substantially more to come from

their employer (34 percent) than the average globally (24 percent), and less of their retirement income to come from their own savings

and investments (26 percent; 30 percent globally). The U.K. benefits from having auto enrolment into pension savings fully rolled out for

employees, causing the portion of retirement income sourced from their employer to be notably higher than other countries in the study.

Expected portion sizes from each of the three pillars vary between different personal income levels, however. While U.K. workers with

high personal incomes expect a quarter (25 percent) and those with middle incomes a third (35 percent) of their retirement income to

come from the Government, the larger low income group expect almost half of their retirement income (47 percent) to be funded by

the state. People in the low income group are likely to have amassed less in both personal savings, and their employers will naturally

contribute less to their pension as it is done by percentage of earnings. The question is, with all these pressures on the system, how do

people in the U.K. of all income levels expect the Government to sustain this level of funding?

The role of the government under growing pressure For years, experts have expressed concerns about the sustainability of pay-as-you-go Social Security systems. These systems are

designed such that today’s workers are contributing and paying for the benefits of today’s retirees. Due to increases in longevity and

lower fertility rates, populations are ageing with retirees living longer than this system was initially designed for – compounded with a

smaller portion of current workers paying into the system. The U.K. is no exception: the Office for National Statistics projects the U.K.

population to grow from 66 million in 2016 to 76 million by 2046. And, as life expectancies extend and if fertility continues to stagnate,

the proportion of the population aged 65 and older is expected to swell from 18 percent in 2016 to 25 percent by 2046, placing ever

more strain on the government to provide support.7

Asked what measures the government should undertake to address the growing cost of government pensions, the consensus in the U.K.

is that some form of action is necessary. The most common view is that the value of retirement payments should stay the same and that

taxes should be increased to fund this (39 percent). Opposingly, just nine percent of people in the U.K. take the view instead that the

overall cost of Social Security provision should be reduced, therefore alleviating the need to increase taxes. Between these two positions,

a further 30 percent believe that a balanced approach needs to be taken, with some reductions in individual payments but also conceding

that there will need to be some increases in tax.

Chart 3 – People in the U.K. expect two-fifths of their retirement income to come from the government

Own savings & investments

Employer

Government

Global

30%

46%

24%

UnitedKingdom

26%

40%

34%

U.K. (LowPersonalincome)

23%

47%

30%

U.K. (MediumPersonalincome)

26%

35%

39%

U.K. (HighPersonalincome)

34%

25%

41%

7 Office for National Statistics, “Overview of the UK population: July 2017”. 2017

8 | The Aegon Retirement Readiness Survey 2018

Changes in employment and the impact on employer benefits As well as creating uncertainty about the future of funding Social

Security, many of the megatrends discussed earlier in this section

have also led to changing employment arrangements and employer

benefit offerings. This then leads to uncertainty about the role

played by employers in helping workers prepare for retirement.

It is increasingly common for workers to change employers several

times over their careers, and possibly become self-employed at

one time or another. Traditional defined benefit plans, which were

designed to fund the retirement of long-service workers at a time

of a then-shorter life expectancy, are disappearing from the private

sector retirement landscape. Instead, employers globally are

shifting to offering defined contribution plans, in which employers

are not only expecting workers to self-fund a greater portion of

their future retirement income, but also to bear more investment

risk.

The U.K. government began rolling out auto enrolment in April

2012, with staging dates gradually increasing coverage up until

February 2018. Workers aged 22 to state pension age with an

annual income of over £10,000, are as a default placed into their

workplace pension scheme, although workers do have the option

to opt out. Almost seven-in-ten (68) percent of workers in the

U.K. say that they have access to retirement plans with employer

contributions from their employer, rising from 60 percent in 2014

when the question was introduced. Unsurprisingly, given the lack of

auto enrolment schemes globally, the U.K.’s access to these plans

far exceeds the global average of 43 percent. Almost three-in-five

U.K. workers (57 percent) can work past the normal retirement

age, compared to less than half globally (47 percent). A quarter

(26 percent) of U.K. workers say that they have access to a phased

retirement, and the same proportion again (26 percent) have access

to a retirement plan without employer contributions (global: 29

percent and 27 percent respectively).

Chart 4 – Two-in-five people in the U.K. think the government should increase Social Security funding through raising taxes without having to reduce individual

payments

Global

United KingdomDon't know17%

18%

The Government should not do anything. Social Securityprovision will remain perfectly a�ordable in the future

6%

7%

The Government should reduce the overall cost of Social Securityprovision by reducing the value of individual pension payments,

without having to increase tax

9%

16%

The Government should take a balanced approach with somereductions in individual payments and some increases in tax

30%

26%

The Government should increase overall funding available forSocial Security through raising taxes without having

to reduce the value of individual payments

39%

34%

The Aegon Retirement Readiness Survey 2018 | 9

Chart 5 – Two-thirds of U.K. workers have access to a retirement plan with employer contributions, far surpassing global average

United

KingdomGlobal

Vacation/ paid time off 82% 77%

Basic salary 82% 79%

Convenient location of workplace 72% 67%

Retirement plan with employer contributions 68% 43%

Ability to work past the normal retirement age 57% 47%

Flexible working hours 55% 49%

Opportunities for career progression 51% 51%

Access to good training provision 50% 47%

Overtime and bonus pay 45% 54%

Life insurance 31% 40%

Phased retirement or other employer programs providing for a transition into retirement 26% 29%

Retirement plan without employer contributions 26% 27%

Stock purchase plan 22% 21%

Medical health insurance 20% 57%

Aegon Retirement Readiness Index and the role of individualsThe role the individual takes in retirement preparation is gradually increasing but has further to go. The Aegon Retirement Readiness

Survey (now in its seventh year) measures the level of retirement planning workers undertake as responsibility gradually shifts towards

the individual. The Aegon Retirement Readiness Index (ARRI) provides an annual score based on responses to six separate questions: three

broadly attitudinal (Questions 1, 2, 3) and three broadly behavioral (Questions 4, 5, 6). These questions are illustrated in the diagram

below.

What factors shape the ARRI score?

6

25

34

Personal responsibilityTo what extent do you feel personally

responsible for making sure that you will

have sufficient income in retirement?

Income replacementDo you think you will achieve the level of income

you think you will need in retirement?

Financial understandingHow able are you to understand financial matters

when it comes to planning for your retirement?

Retirement planningThinking about your own personal retirement planning

process, how well developed would you say that your

personal retirement plans currently are?

Level of awarenessHow would you rate your level of awareness

on the need to plan financially for your

retirement?

Financial preparednessThinking about how much you are putting

aside to fund your retirement, are you saving

enough?

1

10 | The Aegon Retirement Readiness Survey 2018

The ARRI ranks retirement readiness on a scale from 0 to 10. A high index score is between 8 and 10, a medium score between 6 and 7.9,

and a low score is one that falls below 6. (For additional information about the ARRI and its methodology, please see Appendix 1 on page

22).

With an ARRI score of 6.0, the U.K. just achieves a medium score by the smallest of margins. The U.K.’s ARRI score has fallen since 2017

(6.2) and the U.K. slides from 5th place in 2017 to joint 6th in 2018.

The U.K. has more ARRI high scorers than the global average (23 percent vs. 19 percent), and fewer individuals with medium scores (26

percent vs. 30 percent). Still, half (51 percent) of U.K. workers have a low ARRI score, in line with the global average.

Chart 6 – The U.K. places joint-sixth in retirement readiness

Indi

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Chin

a

Bra

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Uni

tied

Sta

tes

Ger

man

y

Cana

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Uni

ted

Kin

gdom

Aus

tral

ia

Net

herl

ands

Turk

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Pol

and

Fran

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Hun

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Spai

n

Japa

n

Tota

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5.9

4.75.1

5.3 5.4 5.5 5.5 5.7 5.9 6.0 6.0 6.16.5 6.6 6.7

7.3

ARRI score (per country)

The Aegon Retirement Readiness Survey 2018 | 11

Part 2 – Improving individual retirement security – the role of financial literacy and auto-enrollment People in the U.K. generally have a positive outlook on retirement. Seven-in-ten (70 percent) associate retirement with positive words

such as ‘freedom,’ ‘opportunity,’ and ‘leisure’, in line with the global average (68 percent). There are fewer negative associations of

retirement in the UK, with just 43 percent of people associating the period with words such as ‘poverty,’ ‘insecurity,’ and ‘loneliness,’

compared to 50 percent globally.

This positive mindset can be seen in the retirement aspirations held by people in the U.K.: over half aspire to travel (56 percent) and

almost the same proportion (55 percent) aspire to spend more time with family and friends.

Over the years, the survey consistently finds that saving on a regular basis is the best route to retirement readiness. The Pensions Acts of

2008 and 2011 introduced automatic enrolment, making use of learnings from behavioral economics to effectively take the decision to

save for retirement out of the hands of individuals. Workers are automatically enrolled into an employer plan and start saving a portion

of their salary, and they only need to take action if they choose not to save.

Forty-five percent of U.K. workers say they are saving for retirement on a habitual basis, which is only a five percent upturn on the survey

figures from 2012, the year the auto enrolment rollout began. There are a number of factors contributing to the 55 percent of U.K.

workers not saving habitually for retirement, despite auto enrolment now being fully deployed in the U.K.

Chart 7 – Travelling and spending more time with friends and family tops the list of retirement aspirations

Spending more time with friends and family

Traveling

Don't know 3%4%

NET: Business/ paid work 25%24%

Studying 12%9%

Volunteer work 27%22%

Pursuing new hobbies 50%45%

57%55%

63%56%

Continue working, but in another field 11%9%

Starting a business 10%7%

Continue working in the same field 15%14%

Living abroad 12%14%

None of the above 3%5% Global

United Kingdom

12 | The Aegon Retirement Readiness Survey 2018

1. Cognitive factors: It is likely that the automatic nature of auto enrolment, coupled with the fact that income is taken at source,

means that workers may simply not register or consider themselves to be saving for retirement (while contribution rates are low

there is likely to be at least, for some, an ‘out of sight, out of mind’ attitude to auto enrolment).

2. Opt-outs: Research from the Department of Work and Pensions (DWP) suggests that nine percent of automatically enrolled

workers in 2016/17 choose to opt-out of the plan.8 And with individual mandatory contributions having been increased from one

percent of gross salary at the time the DWP report was written to three percent in 2018, and set to rise again to five percent in

2019, the number of scheme opt-outs may prove likely to increase.

3. Coverage: A small proportion of workers do not qualify for auto enrolment based on their age and income not meeting the opt

in criteria. Our data shows that 11 percent of workers earn less than the £10,000 minimal earnings criteria and therefore would

not be automatically enrolled (although those earning between £6,032 and £10,000 are not automatically enrolled, they do

have the right to opt in). Four percent of workers are aged under 22 years and would therefore not be automatically enrolled (but

again, so long as they earn over £6,032 per annum, they do have the right to opt in to the scheme). Workers aged over the State

Pension age will not be automatically enrolled by their employer either. Auto-enrolment is designed to take the ‘choice element’

around long-term savings away from workers to help prevent human nature (e.g. hesitation or procrastination) hampering the

saving efforts of younger workers, to start them saving earlier to expose them to the benefits cumulative interest has on long-

term savings. Workers over the State Pension age will have already taken this decision and either already have a workplace

pension set up or have decided not to save. Workers aged between the State Pension age and 74 do have the right to opt in.

Automatic enrolment does not apply at all to workers aged 75 and over. The tax benefits of saving into a pension scheme stop

at age 75. It is also worth noting that auto enrolment also does not cover self-employed individuals (not covered in the survey

sample).

It should be noted however that the majority of people in the U.K. (66 percent) are currently saving for retirement, albeit not all of them

doing so habitually. One-in-five workers in the U.K. (21 percent) say they are saving for retirement, but only on an occasional basis.

However, a third of the population are not saving for retirement: 13 percent are not saving but have done in the past; 16 percent aren’t

saving but do intend to do so; and five percent have never saved and have no intention to do so.

As well as putting money aside for retirement, a certain amount of planning is required to make sure that aspirations can be fulfilled in

retirement, such as the ones people in the U.K. identified in Chart 7. The study finds that over half (53 percent) of U.K. workers already

have a plan in place for retirement, including eleven percent who have committed this plan to writing (‘retirement strategists’). This falls

slightly short of the global average, where 58 percent have a plan, including 13 percent with theirs in writing. The act of considering

one’s future finances and committing a plan to writing formalizes the process, thereby increasing the likelihood of success.

Chart 8 – Almost half of U.K. workers are habitual savers

Habitual savers - I always makesure that I am saving for retirement

Occasional savers - I only save forretirement occasionally from timeto time

Past savers - I am not saving forretirement now, although I havein the past

Aspiring savers - I am not savingfor retirement though I do intend to

Non-savers - I have never saved forretirement and don’t intend to

Global 39% 12%24% 19% 6%

45% 21% 13% 16% 5%United

Kingdom

8 Department for Work & Pensions, Employers’ Pension Provision Survey 2017. June 2018

The Aegon Retirement Readiness Survey 2018 | 13

38% 4%44%13%Global

43% 4%11% 42%United

Kingdom

I have a written plan I have a plan, but it isnot written down

I do not have a plan Don’t know

Chart 9 – One-in-nine workers in the U.K. are retirement strategists

Chart 10 – Almost three-in-ten people in the U.K. correctly answer all 3 financial literacy questions

United

Kingdom Global

FL1. The compound interest question – % answering correctly 78% 75%

FL2. The inflation question - % answering correctly 64% 63%

FL3. Risk diversification

question - % answering correctly38% 45%

FL1. + FL2. + FL3. - % answering all “Big Three” financial literacy questions correctly 28% 30%

Saving habitually and setting forth a written financial plan for retirement can help workers in the U.K. achieve their retirement

aspirations. But do they have the knowledge to make what can be very important and detailed financial decisions?

Equipping individuals with the tools to better plan for retirement Pressure on the social contract means that ever more responsibility is falling into the hands of individuals, and away from the experts

– be it ensuring a sizeable state pension from their retirement plans to the growing prominence of robo-advisers and robo-investors

for savings advise in place of a typical high street financial adviser. People are increasingly asked to navigate through many different

financial concepts, many of which require a detailed level of understanding.

With their permission, the survey uses a framework developed by Drs. Annamaria Lusardi and Olivia S. Mitchell dating back to 2004, to

measure financial literacy. Lusardi and Mitchell created the “Big Three” questions that measure understanding of compounding interest,

inflation, and risk diversification. Their questions test respondents’ actual knowledge of these three topics, rather than their self-

reported knowledge. The questions, along with the correct answers, can be found in Appendix 2 (page 23).

Respondents in the U.K. broadly performed in line with the global average in terms of their financial literacy. Almost four-in-five correctly

answered the compound interest question (78 percent in the U.K.; 75 percent globally), 64 percent correctly answered the inflation

question (63 percent globally) while 38 percent correctly answered the risk diversification question (45 percent globally). Overall, almost

three-in-ten people in the U.K. (28 percent) correctly answered all of the “Big Three” financial literacy questions (30 percent globally).

14 | The Aegon Retirement Readiness Survey 2018

Chart 12 – Those with greater financial literacy tend to be better prepared for retirement

U.K. Workers

(Total)

U.K. Financially Literate

Workers (Correctly answer

all “Big Three” Financial

Literacy questions)

ARRI score 6.0 7.0

Habitual savers 45% 55%

Those with a retirement plan (either written or unwritten) 53% 67%

Able to understand financial matters when it comes to planning for retirement 58% 77%

“I have a very good idea of the total value of all my personal retirement savings

and investments.”58% 76%

Without the requisite level of financial knowledge, it is impossible for people to formulate good retirement plans, or even know what

questions to ask of advisors and retirement plan providers when seeking advice. Low financial literacy may also translate into failure to

engage in any kind of retirement planning.

Low levels of financial literacy are concentrated among certain groups. While 28 percent of people in the U.K. correctly answer all

three financial literacy questions, this falls to 22 percent among both those educated below undergraduate level and those with a low

personal income. For women and Millennials, however, even fewer correctly answer the “Big Three” questions (18 percent and 12 percent

respectively). There is clearly work to be done in terms of improving financial education in the U.K., particularly in a way that will target

these groups.

In a world in which workers are expected to exercise more choice over how much they put aside for retirement, and how those retirement

savings are invested, it is imperative to increase financial literacy among adults. Furthermore, there is a distinct need to provide more

financial education, starting at an early age, so children can gain these vital skills that will serve them throughout their lives.

On the other hand, those who correctly answer all “Big Three” financial literacy questions (thus showing a higher degree of financial

literacy) demonstrate better behaviours in terms of their retirement planning. They score higher on the ARRI (7.0 vs. 6.0 overall), are

much more likely to be saving habitually for retirement (55 percent do so vs. 45 percent overall), and a higher proportion hold a plan

for retirement either in writing or unwritten (67 percent vs. 53 percent overall). More workers in the U.K. who correctly answer all “Big

Three” financial literacy questions feel they understand financial matters around retirement (77 percent do so vs. 58 percent overall) and

similarly more are likely to know the value of their retirement savings (76 percent vs 58 percent overall).

Highpersonalincome

Mediumpersonalincome

Lowpersonalincome

Under-graduatedegree

or above

Less thandegree

educated

BabyBoomers

GenerationX

MillennialsWomenMenUnitedKingdom

1966 - 1979

1979 - 2000

1947 - 1965

Correctly answer all “Big Three” financial literacy questions

71%

28%

39%

18%

12%

25%

42%

22%

37%

22%

35%

42%

Chart 11 – Less than a fifth of women and one-in-eight Millennials are financially literate

The Aegon Retirement Readiness Survey 2018 | 15

The lack of widespread financial literacy is alarming. Addressing it should be a top priority for policymakers, educators, retirement benefit

providers, and other social institutions alike.

Changing infrastructure to make it easier for individuals to save The strained social contract is forcing people to fund a greater portion of their retirement for themselves. Auto enrolment, now fully

rolled out in the U.K., finds strong support among U.K. workers where 63 percent finding the idea appealing.

When auto enrolment was introduced in the U.K. in 2012, initial mandatory contribution rates from both employer and worker were just

one percent of the individual’s gross salary. This low level helped to ease workers into the process of putting money aside at-source for

retirement, familarising and normalising the system. However, contributions at these levels would not be produce a pension pot capable

of supporting an individual through their retirement. Indeed, recent Aegon analysis found people on average earnings will need a pension

pot of £301,500 to maintain their current lifestyle in retirement, based on the government’s suggestion of a target replacement income

of two-thirds of an individual’s working age income.9, 10

Accordingly, to boost pot sizes, the government is automatically increasing the minimum contribution rates through a process of auto

escalation. Contribution rates rose to five percent of employees’ salaries in April 2018 (three percent from workers and two percent from

their employers) and will increase to 8 percent by April 2019 (five percent contributed by the worker and three percent by the employer). 11

The good news is that the average contribution rate workers in the U.K. consider appropriate to be deducted from their salary is 7.0

percent, not far short of the global average (7.5 percent), and more than the upcoming five percent that will be required as of April 2019.

However, a review by the Pensions Institute in 2014 recommended that contributions be increased to 15 percent to avoid future

pensioner poverty.12 The survey worryingly finds that just under half (48 percent) of U.K. workers say that they would be likely to use a

feature in which their employer automatically increase their contribution rate to a plan by a certain percentage each year (compared to

47 percent globally) – meaning that half of U.K. workers would not be keen on automatically sacrificing more of their salary year-on-year,

as is underway at present. The danger is that auto escalation brings contributions to a more conspicuous level, where they reach a tipping

point and workers respond by opting out of the system. This is most pertinent among different earning levels. While 62 percent of those

with high personal incomes would likely use an auto-escalating pension, this falls to 51 percent of middle income earners and 44 percent

of low income earners. For the latter, having money in the here-and-now can be a more powerful demand on finances than stashing for

the future, especially if putting money aside feels unaffordable.

Highpersonalincome

Mediumpersonalincome

Lowpersonalincome

Under-graduatedegree

or above

Less thandegree

educated

BabyBoomers

GenerationX

MillennialsWomenMenUnitedKingdom

Global

57%

48%

53%

44%

52% 53%

41%

48%

51%

44%

51%

62%

1966 - 1979

1979 - 2000

1947 - 1965

Very or somewhat appealing

Chart 13b – Less than half of U.K. workers would be likely to use an auto-escalating feature in a retirement plan

Chart 13a – More than three-in-five workers in the U.K. find the idea of auto-enrolment appealing

Global 57%

63%United

Kingdom

9 Aegon, “£300,000 pension pot required to maintain lifestyle”. January 201810 Department for Work & Pensions, Automatic Enrolment Review 2017: Analytical Report. December 201711 The Pensions Regulator, “Increase of automatic enrolment contributions” (Accessed October 2018)12 Pensions Institute, Independent Review of Retirement Income: Summary. March 2016

16 | The Aegon Retirement Readiness Survey 2018

Part 3 – Potential health issues loom large as retirement concerns As seen in Part 2, people in the U.K. generally hold positive associations with retirement, but naturally the ageing process is not without

worries. Declining physical health (47 percent) and running out of money (43 percent) top the list of retirement concerns in the U.K.

People in the U.K. show a heightened level of concern about getting Alzheimer’s or dementia (40 percent vs. 33 percent globally), not

being able to do the things they enjoy (36 percent vs. 31 percent globally) and losing their independence (35 percent vs. 28 percent

globally).

Worries around the affordability of retirement are brought to reality in the study’s finding that half of fully-retired people in the U.K.

retired sooner than they had planned to (compared to just 39 percent globally), with unemployment (42 percent) and ill health (20

percent) the key reasons for people exiting the workplace prematurely. Financially, working up to or beyond the planned retirement age

brings a two-fold advantage: the ability to continue saving and deferring the need to draw down savings. It also helps keep older people

more active and more socially engaged.

Chart 14 – Declining physical health and running out of money top the list of U.K. retirement concerns

Facing mental health issues (e.g., depression) 23%22%

Not being able to do the things I enjoy31%

36%

None of the above 5%6%

Don't know 4%3%

Losing sense of purpose after stopping work 20%18%

Lacking social engagement 18%19%

Losing my independence35%

28%

Needing assistance with basic activities (e.g.,bathing, dressing, meal preparation etc.)

27%28%

Being alone and isolated 29%26%

Not being able to stay active 35%34%

Getting Alzheimer's or dementia 40%33%

Running out of money 43%41%

Declining physical health 47%49%

Needing to move to a nursing home26%

23%

Not having a daily routine 13%15%

Global

United Kingdom

The Aegon Retirement Readiness Survey 2018 | 17

In terms of keeping themselves in the optimal position to stay in the workplace for their preferred duration, the good news is that people

in the U.K. are a health-conscious group. Three-in-five (60 percent) people in the U.K. eat healthily (e.g. five-a-day portions of fruit and

vegetables), over half exercise regularly (54 percent) and avoid harmful behaviours such as drinking too much alcohol or smoking tobacco

(52 percent). Although more than two-in-five (43 percent) think about their long-term health when making lifestyle choices (for example

by avoiding stress), people in the U.K. fall well below the global average in terms of taking their health seriously by having routine

medical check-ups and doing regular self-checks (34 percent vs. 44 percent).

Just as forming good financial habits early on in life can help individuals achieve a secure retirement, forming good health habits early

can help workers maintain good health into retirement. Here, employers can play an important role by offering workplace health and

wellness programmes.

Four-in-five (82 percent) U.K. workers would be interested in at least one health and wellness programme, if their employer were to

offer them. Healthy food or snack options at the office (40 percent), exercise programmes (35 percent) and health risk assessments (33

percent) top the list of favoured schemes. On the whole, however, interest in employer-offered programmes amongst workers in the U.K.

is lower than the study finds globally. In particular, U.K. workers show a noticeable disinterest in ergonomic workstations (18 percent

compared to 29 percent globally) and corporate-sponsored events (17 percent compared to 27 percent globally).

Chart 15 – Half of U.K. retirees retired sooner than planned

Chart 16 – The majority of people in the U.K. eat healthily, exercise regularly and avoid harmful behaviours

Global

United KingdomDon't know / prefer not to answer

1%1%

I practice mindfulness regularly (e.g., meditation and relaxation exercises)15%

19%

I think about my long-term health when making lifestyle choices.For example, I try to avoid stress

43%

45%

I take my health seriously (e.g., have routine medical check-upsand do regular self-checks)

34%

44%

I eat healthily (e.g., five-a-day portions of fruit and vegetables)60%

56%

I exercise regularly54%

51%

I avoid harmful behaviors (e.g., drinking too much alcohol or smoking tobacco)52%

58%

None of the above7%

6%

Global 12% 48% 39% 1%

UnitedKingdom

16% 32% 50% 3%

I retired later than I had planned to

I retired at the age I had planned to

I retired sooner than I had planned to

Don't know/ can't recall

18 | The Aegon Retirement Readiness Survey 2018

Chart 17 – Two-in-five U.K. workers would be interested in healthy snacks at the workplace and a third would be interested in employer-offered exercise

programmes

An app that can help you set wellness goals, measure progressand access information

16%19%

NoneGlobal

United Kingdom

Don't know4%4%

Programs for substance or alcohol abuse 7%10%

Contests and opportunities to win prizes for health-related activities15%

20%

Programs, counseling or therapies to help with mental health issues 19%24%

Education on healthy behaviors (e.g., newsletters,e-mail communications, lunchtime lectures)

16%22 %

Corporate-sponsored events (e.g., walks, runs, bicycle races) 17%27%

Tools to monitor health goals/biometrics (e.g., BMI/weight loss,cholesterol levels, blood pressure)

26%28%

Ergonomic workstations (e.g., standing desks,adjustable workspace furniture)

18%29%

Health risk assessment 33%30%

On-site health clinic available for routine visits 26%31%

Financial incentives for focusing on your health and wellness 30%35%

Preventative screenings and vaccinations30%

35%

Healthy food or snack options at the o�ce 40%41%

Exercise programs – either on-site or discounts for local gyms 35%40%

A wellness coach to o�er guidance and encouragement to helpyou achieve your health-related goals

19%24%

Programs to stop smoking 9%15%

14%9%

The Aegon Retirement Readiness Survey 2018 | 19

21% 21%

27%

15%

26%

15% 18%

13%

20%

44%

Excellenthealth

Goodhealth

Fair healthBabyBoomers

GenerationX

MillennialsWomenMenUnitedKingdom

Global

Extremely or very confident

1966 - 1979

1979 - 2000

1947 - 1965

13 LaingBuisson, Care Homes for Older People: UK Market Report. July 2018

As covered in Part 3, health and money top the list of retirement-related concerns and around the world. No doubt, the cost of healthcare

in retirement is likely to be a significant factor fuelling these concerns. Just one-in-five people globally say they are very or extremely

confident that they will be able to afford their own healthcare in retirement.

There is often an assumption in the U.K. (which has an extensive public healthcare system) that people can leave their healthcare to

the state. But in practice, the nature of public healthcare means universal coverage and immediate care can be patchy. Not only is

there a postcode lottery as to which different NHS Trusts provide access to different services and treatments, but devolution means

the healthcare provision varies depending on which of the four home nations an individual lives in. This is reflected in the survey data

where just 21 percent of people in the U.K. are confident that they will be able to afford their own healthcare in retirement. Among

certain groups, confidence is even lower. Far fewer women (15 percent) are confident than men (27 percent), which may be symptomatic

of women typically living longer than men and typically holding less in savings and retirement funds. Confidence is also lower among

people who are currently in fair health (13 percent), who may already be able to more accurately calculate the financial cost of their

health in later life. Millennials (26 percent) and those currently in excellent health (44 percent) are among the most confident, however,

it is important to stay aware that health can rapidly deteriorate in later life which people should factor into their plan. This could include

making lifestyle adjustments outside of immediate administration of medical care to requiring more thorough, immediate or specialised

care that is not covered under the NHS.

Feeling confident about the affordability of retirement forms part of the desire to be able to age with a sense of certainty, autonomy and

comfort. It is of particular importance for individuals to remain in their home as they get older.

Ageing in place – that is, the ability to live in one’s own home and community safely in old age – independently and comfortable

regardless of age, income or ability level is of at least some importance to 92 percent of people globally, and U.K. levels are similarly

high (93 percent). Two-in-five people in the U.K. (41 percent) say that the issue is extremely important to them, compared to 36 percent

globally. As well as greater levels of concern in the U.K. among individuals losing their independence in retirement (chart 14, page 16),

the high cost of residential care in the U.K. is likely to be contributing to the amount of individuals placing such high importance on

ageing in place. The average place in a residential care home in the U.K. is £31,200 per year, and the addition of nursing brings costs to

almost £44,000 per year (although costs vary greatly by region).13

Part 4: Living and aging in good health and with dignity

Chart 18 – One-in-five people in the U.K. are confident that they will be able to afford their own healthcare in retirement

20 | The Aegon Retirement Readiness Survey 2018

Chart 20 – Bathroom modifications and panic buttons top the list of features and devices people the U.K. envision having added to their homes as they get old

Chart 19 – The majority of people in the U.K. say it is important to remain in their own home as they get older

Despite this dominant preference, the typical British family home may not always be well-suited to individuals as they grow old and

are less able to climb stairs, or even keep on top of household chores. Through D.I.Y. adjustments and/or new technology, homes can

be developed, or devices installed, to help individuals age in place. For people in the U.K., bathroom modifications (35 percent), panic

buttons (34 percent) and home security systems (32 percent) top the list. However, people in the U.K. are less receptive across all listed

features and devices to help them as they age. Compared to the global average however, more people in the U.K. do not envision needing

any adjustment (16 percent in the U.K. compared to nine percent globally).

Elevator / stair lift 17%21%

Bathroom modifications 35%43%

Robot to keep me company

Global

United Kingdom

Age-friendly furniture 26%37%

Panic buttons to call emergency services 34%37%

Medical alert system to warn about changes in health(e.g., blood pressure monitors etc.)

24%33%

Robot to help with chores, medication management,communication, etc.

11%17%

6%9%

Don't know / prefer not to answer 14%8%

None of the above 16%9%

Wheelchair accessibility 9%18%

Video monitoring 11%20%

Ramps and/or grip bars22%

26%

Kitchen modifications 20%28%

Home security system 32%39%

Global 22%5% 36%35% 2%

UnitedKingdom

19%4% 2%32% 41%

Extremely important

Very important

Somewhat important

Not very important

Not at all important

Don't Know

2%

1%

The Aegon Retirement Readiness Survey 2018 | 21

Why do we need a new social contract? The retirement landscape is changing. As megatrends rumble

on, affecting economies, political overtones and demographics,

the way people live, work, and retire is in a state of evolution.

The current British social contract, constructed in the post-

war proliferation of the welfare state, is crumbling. With this

agreement on who shoulders the responsibility for funding

retirement struggling to stay in place, a new social contract

must be formed. This new social contract must address the need

for a redistribution of responsibility in how people fund and

prepare for their retirement, while ensuring that the necessary

tools, resources, and infrastructure are provided. It must honour

the principles of sustainability and solidarity, while providing

adequate safety nets that enable people to age with dignity, avoid

poverty in old age, and ensure that vulnerable people are not left

behind. Achieving success depends on building new collaborative

relationships based on common objectives, benefits, and trust.

Who are the partners in the new social contract?Governments take centre stage in orchestrating retirement

systems in their countries making sure that everyone, especially

at-risk segments of the population, is included. Employers help

by offering workplace retirement savings and other benefits to

employees. These benefits include skills training, healthcare

and wellness. Individuals must take on a more proactive role in

‘owning’ their retirement security. And new social partners like

academics, think tanks, industry, charities and NGOs will work

more closely in public-private collaborations to share expertise,

innovate, and implement solutions. Schools and financial

professionals have a role in preparing individuals to understand

financial matters and implement financial decisions that can

enhance their retirement security.

Nine essential design features of the new social contract are:1. Sustainable social security benefits that serve as a

meaningful source of guaranteed retirement income and avoid

risk of poverty among retirees.

2. Universal access to retirement savings arrangements for

employed workers and alternative arrangements for the self-

employed and those who are not employed due to parenting,

caregiving, or other responsibilities.

3. Automatic savings and other applications of behavioural

economics that make it easier and more convenient for people

to save and invest.

4. Guaranteed lifetime income solutions in addition to social

security benefits. Education for individuals to strategically

plan how to manage their savings to avoid running out of

money, including a knowledge of the options to help them

do so. Governments, employers and others should increase

awareness of, and encourage individuals to take advantage

of, opportunities to have a portion of their retirement savings

distributed in the form of guaranteed income, such as an

annuity.

5. Financial education and literacy so individuals understand

basic concepts and retirement-related products and services.

Individuals must be able to ask good questions and make

informed decisions. Financial literacy must be integrated into

educational curriculums so that young people learn the basics

of budgeting, investing and managing their savings – skills

that can serve them well for the rest of their lives.

6. Lifelong learning, longer working lives and flexible retirement

to help people to stay economically active longer and

transition into retirement on their own terms -- with adequate

financial protections if they are no longer able to work.

7. Accessible and affordable healthcare to promote healthy

ageing. Governments play a vital role in sponsoring and/or

overseeing healthcare systems. Employers should provide

healthy work environments and consider offering workplace

wellness programs.

8. A positive view of ageing that celebrates the value of older

individuals and takes full advantage of the gift of longevity.

9. An age-friendly world in which people can “age in place” in

their own homes and live in vibrant communities designed for

people of all ages to promote vitality and economic growth.

Part 5: Forging the new social contract

22 | The Aegon Retirement Readiness Survey 2018

Appendix 1 – ARRI methodologyThe 2018 ARRI is based on the sample of 14,400 workers, and has

been developed to measure attitudes and behaviors surrounding

retirement planning. Six survey questions (known as “predictor

variables”) are used, three broadly attitudinal and three broadly

behavioral:

1. Personal responsibility for income in retirement

2. Level of awareness of need to plan for retirement

3. Financial capability/understanding of financial matters

regarding plans for retirement

4. Retirement planning – level of development of plans

5. Financial preparedness for retirement

6. Income replacement – level of projected income

replacement

As well as these questions, a dependent variable question is asked

which is concerned with approaches to saving, for which five broad

saver types have been identified: habitual, occasional, past, aspiring,

and non-savers.

In order to create the index score, the predictor variables are

correlated with the dependent variable to obtain a measure of

influence (known as an “R” value). The mean scores of the predictor

variables are computed and each mean score is multiplied by its “R”

value. The results are summed and then divided by the sum of all

correlations to arrive at the ARRI score.

Note on the effect of increasing the number of survey countries year-on-year The first Aegon Retirement Readiness Survey, published in 2012,

was based on research conducted in nine countries. A separate

survey in Japan was conducted and reported on later that year.

Therefore, 2012 is regarded as a 10-country study. In 2013, two

new countries (Canada and China) were added, bringing the universe

to 12. In 2014, a further three countries (Brazil, India and Turkey)

were added, increasing the universe to 15. In 2015, the overall

size of the survey was maintained at 15 countries, although with

the introduction of Australia and removal of Sweden. In 2018, the

countries surveyed remained the same as 2017, 2016 and 2015.

Total survey respondents16,000

Workers900

per country***

Fully retired people100

1,000 Australia

***Brazil** Canada* China

*1 France

Germany Hungary

* Added 2013** Added 2014

1 In China 2,000 surveyed in total

India** Japan The Netherlands

Poland Spain Turkey** UK US *** Added 2015

Total survey respondents16,000

Workers900

per country***

Fully retired people100

1,000 Australia

***Brazil** Canada* China

*1 France

Germany Hungary

* Added 2013** Added 2014

1 In China 2,000 surveyed in total

India** Japan The Netherlands

Poland Spain Turkey** UK US *** Added 2015

The Aegon Retirement Readiness Survey 2018 | 23

Appendix 2 – Answers to the “Big Three” financial literacy questionsCorrect answers to the “Big Three” financial literacy questions are highlighted in green below.

Question 1 – Suppose you had $100 in a savings account and the

interest rate was 2 percent per year. After 5 years, how much do

you think you would have in the account if you left the money to

grow?

• More than $102

• Exactly $102

• Less than $102

• Do not know

• Refuse to answer

Question 2 – Imagine that the interest rate on your savings

account was 1 percent per year and inflation was 2 percent per

year. After 1 year, how much would you be able to buy with the

money in this account?

• More than today

• Exactly the same as today

• Less than today

• Do not know

• Refuse to answer

Question 3 – Do you think that the following statement is true

or false? “Buying a single company stock usually provides a safer

return than a stock mutual fund.”

• True

• False

• Do not know

• Refuse to answer

24 | The Aegon Retirement Readiness Survey 2018

DisclaimerThis report contains general information only and does not constitute a solicitation or offer.

No rights can be derived from this report. Aegon, its partners and any of their affiliates or

employees do not guarantee, warrant or represent the accuracy or completeness of the

information contained in the report.

Contact informationHeadquarters Aegon N.V.Strategy & Sustainability

Mike Mansfield

Program Director – Aegon Center for Longevity and Retirement

Telephone: +31 70 344 8264

Email: mike.mansfield@aegon.com

aegon.com/thecenter

Media relationsTelephone: +31 70 344 8344

Email: gcc@aegon.com

The Aegon Retirement Readiness Survey 2018 | 25