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Schroders Alan Brown

European investors sleepwalking into retirement hardship

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Affluent European investors face surviving off a retirement income that is less than half (46%) of what they are currently used to – even though 42% of them claim that maintaining and increasing their current standard of living into retirement is a top priority – according to new figures from Schroders.

The results are from the Schroders European Wealth Index, which asked more than 1,400 affluent investors in nine European countries what total sum, in today’s money, they needed to give them the annual income they desired in retirement. Across Europe there was broad consensus on the high level of income that people would like to live on in retirement – an average 62% of their current income, which rises to 75% in the Netherlands and 77% in Sweden. However, investor predictions on the size of the pension pot they would need to provide this level of retirement income fell well short, an average of EUR475,862. In today’s money this would provide a typical annual income of just EUR23,793 (based on an annuity rate of 5%). Based on the proportion of current income investors said they would like to live on in retirement, a target pot of EUR645,000 would be a more realistic minimum target.

Swedish investors anticipated needing the largest pension fund in Europe, but while they expected to have a retirement income equivalent to 77% of their current income, their pension pot predictions would give them a retirement income of just 45% of their current level of income.

British investors predicted a pension pot size that would give them the highest retirement income across Europe relative to their current income (52%).

In five of the nine countries surveyed – Spain, France, Belgium, the Netherlands and Italy – investors predicted a pension pot that would give them a retirement income that was less than 40% of their income level, even though investors in four of these countries said they wanted a retirement standard of living that was between 65% and 75% of their current household income.

Alan Brown, Chief Investment Officer at Schroders (pictured), says: "With defined benefit pensions now a rarity, individuals are increasingly being made responsible for their own retirement provision. Whilst there are many factors which influence the amount of money people need to accumulate to enjoy a comfortable retirement, these latest findings suggest many investors are calling it short. There is a yawning gap between retirement income needs and the size of individual savings pools.  Unless this gap is bridged quickly we risk a retirement tragedy where individuals have to work longer, retire poorer or both. The role of an independent financial adviser is therefore even more important in ensuring investors are working to a target retirement fund that is realistic and aligned to their lifestyle goals for the future."

 

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