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UK shortfall in pensions is the worst in world

New research shows that British people are the worst in the world at saving up enough money for their retirement. The “Future of Retirement” study carried out by HSBC as part of their on-going global pension research showed that while the average UK retirement period is currently expected to last 19 years, the pension pot actually put away by the average Brit will only last for around seven, just 37% of their retirement.  The 12 year shortfall puts the UK as one of the least prepared countries in the world in regards to pension planning.

How do these figures compare to the rest of the world? The global average across the 15 countries and more than 15,000 people surveyed showed the concerning statistic that savings will run out for pensioners just after the halfway point (56%).  In second worst position after the UK was Egypt (55% shortfall), with the French coming in third, facing the shortfall of 53%.

What is the significance of the study?  The concept of retirement and the necessary preparation are evolving continuously however now we know just how much people are not prepared as well as how much savers’ expectations do not match their pension reality.  In addition, because the majority of people in developed countries can now expect to live well into their 80s and beyond, many of the pensioners will require extra long-term care provided through the combination of state and other private/family means.

According to the study’s author Mark Twigg: “We are now witnessing an acknowledgement among those in their 30s and 40s that working in retirement is, and may have to be, part of their formal retirement plans.  He adds: “With employment now seen as part of a flexible retirement plan, it is clear that the labour market will need to adapt and health and long-term care policies need to be developed aimed at promoting more active and healthy life styles among older workers.”

The report has shown another concerning pattern that nearly half of those surveyed had never saved for retirement.  This figure peaked in better well off countries such as France (65%), in comparison to 54% in the UK, 56% in Australia and 50% in Taiwan.  This lack of preparation comes despite the majority of people stating that their biggest fear about retirement was living in financial hardship.

In another stark break with reality, many workers expect to retire at 65 despite not having saved enough.  57% of those not yet fully retired in Britain would still pay for a holiday over saving for their retirement.  Another 14% of pensioners-to-be admitted they would rather dip into their pension pot to pay for their children’s education or a home rather then continuing to add up to their savings.

The situation is quite dire, people need to wake up and face the inevitable.  Too many workers will leave their jobs to finally retire only to find that they will have to significantly compromise their lifestyle habits because they did not accumulate enough savings.  This also means they will not be able to cover additional living expenses including important funding for long-term care in old age.

How does this relate to expats living abroad?   According to the research by Lloyds TSB, over 50% of expats who are currently working acknowledged that they will have to significantly reduce their expenses when they finally retire.  Only 30% of expats stated that they have built up enough of a pension pot to maintain their current lifestyle.

In fact, it is those on lower incomes that are most concerned about their savings not being sufficient to cover their current lifestyle.   The weakening of the pound has also not helped the matters, with many expats losing significant value off their pension pots.  In addition, many of them (500,000 according to the International Consortium of British Pensioners) have had their pensions frozen at the rate they were first drawn without accounting for inflation eroding their savings over time.

Fortunately, it is not all doom and gloom, expats approaching retirement age that have lived outside of the UK for over 5 years can move their retirement savings abroad via a QROPS or QNUPS. These pension vehicles have been created specifically for expats and allow them to get better rates of return supporting a good standard of living well into retirement.

To sum up, as daunting as the current pension challenges may seem, the best way forward still comes back to the basics: start planning earlier for your retirement, in order not to leave your financial bases uncovered!  If you have any questions or need assistance with any aspect of your pension planning or an already existing retirement vehicle, don’t hesitate to ask one of our experts.

 

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