Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world
Americas+1 212 318 2000
EMEA+44 20 7330 7500
Asia Pacific+65 6212 1000
How effectively people save for an unexpected loss of income may relate to their expectations of the state stepping in if trouble struck. A new Zurich / Smith School - University of Oxford report, Income protection gaps: challenge and opportunity, 2016 Global Survey Findings, reveals that without some form of external support, many people would face serious financial difficulties if they lost their income.
Six in ten of those surveyed said their savings would last less than six months. More than a quarter of people in Australia, Brazil, Switzerland and the US said their savings could run out in less than a month.
Unrealistic expectations of benefits from the state or employers could make difficult situations worse and in some circumstances the limitations on state support may be misunderstood.
Benefits may be time limited and sometimes exclude young survivors, for example. Disability benefits are relatively low and capped in some nations, including OECD English-speaking countries. Furthermore, demographic shifts and economic uncertainty mean state social security funds are facing budgetary pressures.
Half of those surveyed expect state support for those unable to work to fall in the next five years and another 36 percent of the more than 11,000 respondents think it will stay unchanged.
Two thirds said they would prefer not to rely on their employer or government, favouring insurance coverage as a way to replace lost income.
The survey revealed interesting regional differences and showed some wealthy countries have strikingly low take-up of private income protection.
Life insurance cover in the US has declined significantly since the 1980s, while Germany (17 percent) and the UK (20 percent) have the lowest levels of cover for disability or illness in the study.
By contrast, almost two thirds of people in Hong Kong and Malaysia - where the state requires residents to contribute to ‘provident funds’ - have additional private cover. Residents in these countries are more realistic about personal risk and also know more about income protection than people outside of Asia.
Six in ten Malaysians — double the international average — said they had a better than fair understanding of serious illness and disability insurance, which may explain why they are more likely to take out private cover than people in countries without mandatory schemes. Their attitude perhaps mirrors John F. Kennedy’s thinking when he said: “The time to repair the roof is when the sun is shining.”
While needs differ across countries and between individuals, there is a common need for greater understanding of income protection gaps (IPGs).
State support is under pressure but Asian nations show that, even with strong state schemes, it makes sense to investigate other options.
