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Europe’s affluent rocked by recession as retirement gap emerges

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Across Europe three in four affluent investors (75%) say they have been negatively impacted by the economic instability of the last few years – with more than one in five (21%) concerned they will now have to put back retirement and work longer than they had planned to – according to new research from Schroders.

At a time when there has been wide-ranging industry scrutiny over the impact of the economic downturn on mid to lower income households, the new research dispels any notion that people of moderate affluence have been immune to the recession. In contrast, millions of affluent investors across Europe share a feeling of pressure, are worse off, and face the need to take positive steps to rebuild their retirement plans.

The Schroders “European Wealth Index” research examines the financial outlook and investment attitudes of a representative sample of affluent consumers spanning 10 European counties – those defined as having EUR100,000 investable assets excluding their home. In the first of a series of reports, Schroders asked a representative sample of more than 1,400 affluent investors how they had been affected by the economic instability of the last three years and what their primary investment concerns were.

Across the 10 European countries surveyed, the vast majority of respondents said they had been negatively impacted by economic stability, with people in Italy (93%), France (89%), Spain (88%), and Switzerland (81%) the most likely to claim negative impact. Whilst people in Sweden, the UK and Austria claimed to be the least affected, the figure for negative impact never fell below 69%.

The top stated impact of economic uncertainty was that respondents feared their investments and pension would no longer provide them with the standard of living they had hoped for in retirement. This was the top concern in six of the 10 countries surveyed (Germany 41%, Italy 39%, Spain 38%, Austria 30%, Sweden 29% and Belgium 26%) and was the biggest concern for Europe as a whole (29%). Significantly, in eight of the countries surveyed, investors had gone beyond simply noticing their pension pot had shrunk (24%) and were more likely to be working out the true impact it would have on their future standard of living.

More than one in five people (21%) were concerned they will have to delay their planned retirement age and work for more years than they had intended. This fear topped the list of concerns in Spain (38%) and was also prevalent in France (36%), Italy (33%), and Germany (27%). Conversely, people in Sweden and the UK were least likely to express concern about putting back retirement (16% and 12% respectively) – even though their biggest two worries were a shrinking pension pot and having a lower standard of living in retirement.

The third biggest perceived impact of economic instability was that 20% of respondents believed their standard of living in later life would be lower than that of their parents. If true, this concern suggests the potential for a fundamental change in the wealth landscape across Europe at a time when the affluent are key to a country’s economic growth and a robust tax regime. In France (44%) and Italy (39%) people’s fears of having a lower standard of living than their parents was the top concern, although it proved to be a minor issue in Britain (11%).

A number of additional concerns were prevalent in specific countries. In Spain almost one in seven respondents (15%) said they wish they had sought more professional advice on their investments. In Italy 13% of people said they would have to sell their home to give them the quality of life in retirement that they desired.

When it came to personal investments, the five top concerns across Europe comprised: The Eurozone debt crisis (49%); rising inflation (34%); a weak or prolonged recovery (32%); general market volatility (30%) and current low levels of interest rates continuing (29%). However, whilst the Schroders study showed there was broad consensus across Europe on how people felt impacted by the economic downturn, when it came to their top personal investment concerns opinion diverged considerably. The only threads of agreement comprised:

Investors in just two countries, the Netherlands and Switzerland, shared the same top three concerns and ranked them in the same order (Eurozone debt crisis, followed by prolonged recovery, followed by rising inflation).

In France and Germany there was some agreement, with rising inflation and the Eurozone debt crisis both chosen as two of their top three investment concerns.

In Spain, Italy and Belgium investors all rated increased taxation as their top concern (57%, 49%, and 43% respectively), but disagreed on other issues.

People in Austria and Sweden shared views on the top two concerns – the Eurozone debt crisis (57% and 50%) followed by general market volatility (43% and 38%).

The UK stood alone. Whilst one of five countries to rate the Eurozone debt crisis the top worry (alongside Netherlands, Switzerland, Sweden and Austria) no one shared the order of other top UK concerns – current low level of interest rates continuing (52%), a weak recovery (43%) and rising inflation (39%).

Peter Beckett, Head of European Marketing at Schroders, says: “Our study gives a voice to a vital segment of Europe’s population. Leaving the rich and poor aside, the affluent are the segment of society that underpin tax regimes, provide the captains of industry and are often the catalysts for growth. It is clear from our research that, across Europe, affluent investors are feeling the impact of economic instability and are waking up to a worrying retirement gap. Nonetheless there is also a positive. The great majority of people we surveyed are aware of a problem, many have quantified its cost and impact and this positions them well to take remedial steps. The market, even for the savviest investor is challenging, but with the right professional advice that is tailored to local market challenges, investors can still hope to realise their retirement dreams and have the quality of life in retirement they originally hoped for.”

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