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AMERICANS call it the retirement crisis. The term is not so commonly used in Europe, but the issues are the same.
People are living longer and can expect to be fit and well for years after they have stopped work. They have expectations of a happy, active retirement but the pension funds they invested in were never designed to cope with these modern circumstances.
The extent of America’s problem was illustrated last week by an article on the influential business website, MarketWatch.
It showed that workers need to save about 20% of their salary each year to fund their retirement. But many people cannot afford that, or anything like it, and the result is a growing pension discrepancy based on current income.
The top 20% of earners in the US hold 50% of all retirement wealth. The bottom 20% saw its share of retirement wealth fall from a meagre 3% to just 1% between 1992 and 2010. More than half the workers in the lower group have no retirement savings at all.
Obviously, nobody in that group can have high expectations for their retirement. But the report found that many middle-earners, who did have such expectations, were not saving enough to meet them.
“Future retirees would be better off if they could allocate even a small percentage of their salaries to a retirement account,” concluded MarketWatch finance reporter, Alessandra Malito.
“Median retirement wealth falls 84% short of what it would be if people were to save 6% of every paycheck and receive a 50% employer match.”
The lack of an age-related state pension adds to the problem in America, but many old-age pensions in Europe are so small as to make little difference. In general, what is true for the USA is also true here.
An OECD study found that workers in the developed world expect governmental programmes to replace, on average, 63% of their working-age incomes. But UK pensions replace only only 38%.
That’s the lowest in the OECD, but other countries also have problems. A study by Forbes magazine concluded that France, Belgium, Germany, Austria and Spain are “in deep trouble”.
“They are all pay-as-you-go countries,” said Forbes. “That means they have nothing saved in the public coffers for future pension obligations, and the money has to come out of the general budget each year.
The crisis for these countries is quite predictable, because the number of retirees is growing even as the number of workers paying into the national coffers is falling.”
Europe’s population of pensioners, already the largest in the world, continues to grow. Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.
This pension crisis is a matter of particular concern for expats who have chosen a country such as Cyprus in which to retire or for those who are planning to do so.
If you fall into either category it is important that you explore all your options – for saving, investing and making the best use of savings you already have.
The route you take will depend on your personal circumstances – what you are putting into your pension and what you would like to get out of it.
It is no use just hoping, like Mr Micawber, that something will turn up. You need to plan and the sooner you start, the better.
The Woodbrook Group is an international firm of financial advisers. We are not owned by any financial institution or life insurance company. This makes us different from the majority of financial advisory companies and means we can offer you unbiased and impartial advice.
We can help UK and European nationals who have left their home country to transfer their private pension plans if that is their best way forward.
With our expertise you can improve the investment growth, flexibility and future financial security of your pension. Our qualified professional advisers can help you fulfill all legal requirements to make the most of what you’ve got.
