Pension experts are optimistic that new approaches to retirement planning can help diffuse a potential pensions crisis created by longer life expectancies and lax attitudes towards retirement planning. Julie Koo, head of institutional sales, Asia excluding Japan, Fidelity Investments, said fresh initiatives which aimed to make retirement solutions more user-friendly and practical - including lifecycle or age-based investment funds, online financial planning, and situation-specific investor education - were proving effective in tackling savings inertia and putting more people on track for a comfortable retirement. She said in finding strategies to tackle the problem of global savings inertia, it was important to first identify main causes, namely apathy towards saving for retirement and fear of the complexity of the financial planning process. 'A lack of goals and planning is a common theme running across studies into attitudes on retirement. People start planning for retirement too late, do not save enough, and have no defined targets or goals, the absence of which contributes to even greater confusion and inactivity and no doubt creates anxiety on the part of would-be savers.' In a survey on retirement planning trends conducted by Fidelity in Britain last year, one in two respondents considered the topic of pensions 'boring' and one in four found the subject 'intimidating'. The same survey found that many respondents were in a state of denial over their future financial security. The report said there was a widespread conviction among survey respondents that any shortfall in their retirement needs would be bridged by the inheritance they would receive from parents. In Hong Kong, the inertia in retirement savings is partly the result of the traditional reliance of the elderly on filial financial support in Chinese culture. A survey released last year by HSBC Group and the University of Hong Kong found that 63 per cent of retirees received financial support from their children. 'But this long-standing family support system is unravelling as social attitudes change, divorce rates rise and households shrink.' If some studies have revealed many would-be savers are burying their heads in the sand when it comes to tackling retirement issues and long-term financial goals, other surveys have shown that even those who are saving diligently could fail to reach their retirement goals due to poor investment choices. 'Many savers do not have a good grasp of the basic principles of investing. This was not so much of a problem in the past when most pension plans were defined benefit schemes, but the movement in recent times towards defined contribution plans, where investors are given the freedom to choose how their savings are invested and are required to manage asset allocation in their own investment portfolios, like the MPF scheme in Hong Kong, has left less experienced investors vulnerable to investment mismatches,' Ms Koo said. Inefficient asset allocation due to a lack of investment knowledge was a problem that crossed cultural boundaries, Ms Koo said. In its survey of retirement planning trends in Britain, Fidelity found more than 40 per cent of respondents had no exposure to equities. Worse still, research by Fidelity in Japan showed more than 87 per cent of Japanese personal savings was sitting idle in bank accounts. Investment mismatches were also apparent within the MPF scheme, with too many Hong Kong people being overly conservative in their choices of investment funds, according to Ms Koo. As at the end of last year, 12.8 per cent of assets under management within MPF schemes were stuck in capital preservation funds, which recorded an average five-year annualised return of less than 1 per cent. One of the ways in which pension scheme providers and employers can reduce investment mismatches is to provide savers with more targeted education and services. Ms Koo said there was a need for employers and MPF scheme providers in Hong Kong to move away from providing one-size-fits-all investment education to the workforce and look to deliver investment guidance, which was tailored to distinct demographic groups or segmented according to investment knowledge and experience. She said there was proof at Fidelity that when investor education seminars were made more relevant or situation specific, attendance rates rose. Education aside, she believed product innovation in pension schemes had a key role to play in preventing investment mismatches and overcoming savings inertia. Highlighting the growth of target retirement funds, also known as life cycle funds in the United States and Britain, she predicted that the local pensions industry would follow its overseas counterparts in introducing more long-term investment vehicles which emphasised convenience and simplicity in the future. 'Workplace savers tend to forget to rebalance their investment holdings, diversify broadly or allocate assets in their portfolios in accordance with their age, which invariably increases their exposure to investment risk,' Ms Koo said. 'A target retirement fund automatically performs these key tasks, so the investors themselves need not make any effort to manage their portfolios to enjoy stable returns.' While providing choice to members was a 'moral imperative' (particularly as the burden of investment risk had been shifted from the state and corporations to the individual), she said such self-balancing, age-based investment funds represented a powerful solution in helping the many would-be savers without the inclination or knowledge to manage investments to begin to build their retirement nest egg. 'Target retirement funds have become enormously popular in the US, and we anticipate that in Hong Kong, we will eventually follow this market trend and develop more products based on the same principles of providing convenient and practical investment solutions to our pension scheme members,' she said. 'We believe such funds can become the cornerstone of a good defined contribution scheme.' With target retirement funds serving as a foundation of pension plan and other funds offering more specific investment exposure, and added investment choice, a defined contribution scheme could strike an 'elegant compromise' between the need for simplicity and demand for choice, Ms Koo said. In the US, Fidelity took another step towards cracking savings inertia through the design and adoption of easy-to-use web-based tools, which brought financial planning within the grasp of all plan members. The online retirement tools deployed by Fidelity were designed with simplicity in mind - asking participants only five questions - and generated plans which were personalised and actionable. A third step adopted by Fidelity was to work closely with employers to optimise compensation and benefits for the various employee life stages. This meant the creation of efficient plans, which could not only be structured to match the needs of participants in different stages of life, but also potentially lower costs for employers.