US, European people lag Asians in pension savings: HSBC (AFP)

LONDON (AFP) – Global banking giant HSBC warned of a "major East-West divide" over pensions on Thursday, as workers in Europe and the US struggle to match their Asian counterparts in adequately saving for retirement.

The London-based bank revealed the findings in a report entitled 'The Future of Retirement' after surveying 17,000 people in 17 countries about attitudes towards pensions.

HSBC said the report highlighted "the emergence of a major East-West divide in retirement perceptions."

It added: "The impact of the economic downturn has had a measured impact, particularly in the developed economies of North America and Europe where many people now expect to be worse off than their parents when they enter retirement.

"However, this view is by no means universal with households in many parts of the world having come through the global downturn with their aspirations for a prosperous retirement largely intact.

"This is particularly true in the economic powerhouses of the emerging markets such as India and China," HSBC said.

The bank's head of investments, pensions and savings, David Wells, said that "unless Westerners take a leaf from the book of their Asian peers and start to be accountable for their own futures, sadly many will find their fears of financial hardship in later life come true."

HSBC said half of those questioned in its global survey did not have a financial plan while 41 percent felt under-prepared for retirement.

The survey also showed that 32 percent of respondents expected to face financial hardship when they retired -- but this figure fell to 17 percent in China.

The bank said Chinese households saved the equivalent of 38 percent of gross domestic product (GDP), while in India the figure is 35 percent. That compared with just 3.9 percent in the United States.

Some nations have introduced compulsory plans to change behaviour but HSBC stressed further education was necessary.

"The financial services industry clearly has a role to play in jolting the non-planners into action," it said. "The role of brand and marketing needs to be accompanied by a mix of other interventions."

The bank appealed for "greater funding of financial education programmes creating basic levels of financial education and awareness."

Additionally, it suggested that governments could provide tax relief on workers' pension contributions.

"The key message in this report is that those who take the time to put in place a financial plan are far more likely to enjoy a positive retirement," HSBC concluded.

"As our findings show, financial planning has the power to transform our well-being in retirement."

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What Retirement Savings Tax Breaks Cost Us (U.S. News & World Report)

Saving in a 401(k) or IRA and taking the tax break is good for our personal finances. But shielding your money from income tax is not necessarily good for the country's deficit.

[See 6 Tax-Advantaged Ways to Save for Retirement.]

Workers can defer paying income tax on up to $16,500 in a 401(k) and $5,000 in an IRA in 2011. For those age 50 and older, the limits jump to $22,000 and $6,000 respectively. Excluding 401(k) contributions from income tax cost the federal government $52.2 billion in 2010, according to the Office of Management and Budget. IRA tax breaks cost the federal government another $12.6 billion. Other employer-based retirement plans that allow workers to defer income tax on contributions cost $39.6 billion and Keogh plans cost $13.8 billion.

There is also a tax credit for low income workers who save for retirement. Individuals whose modified adjusted gross income is less than $28,250 ($56,500 for couples) in 2011 may claim the saver's credit, which reduces income tax by up to $1,000 ($2,000 for couples), at a cost of $1.1 billion.

[See Social Security Suspends Annual Statements.]

In total, all of these tax breaks and credits that encourage retirement savings cost us $119.4 billion in 2010. Retirement savings tax breaks cost less than excluding employer contributions for medical insurance premiums ($160.1 billion), but more than the home mortgage interest deduction ($79.2 billion).

President Obama's deficit reduction commission proposed consolidating 401(k)s, IRAs, and other types of retirement accounts into a single type of tax-favored account. The National Commission on Fiscal Responsibility and Reform also suggests capping contributions to the lower of $20,000 or 20 percent of income and expanding the saver's credit. The Bipartisan Policy Center's debt reduction task force supports maintaining existing accounts, but capping contributions at the same annual limits indexed for inflation.

[See How to Save for Retirement on a Low Income.]

There are also additional expensive tax breaks for people who invest their savings outside of retirement accounts. The lower tax rate for capital gains costs us $36.3 billion, and the reduced tax rate for dividends is worth $31.1 billion. For those who pass on their wealth to relatives, not taxing capital gains on assets left to heirs in wills costs $39.5 billion. Both the National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center support scrapping the 15 percent tax rate on capital gains and dividends in favor of taxing these investments at ordinary income tax rates.

Twitter: @aiming2retire

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