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Brits face the biggest pension shortfall

A study of pension shortfalls around the world shows Britons are facing the biggest gap in savings.

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by Michelle McGagh on Feb 20, 2013 at 00:01

Britain has come out worst in a global ranking of the largest retirement shortfalls, with Britons' savings due to run out just seven years after giving up work.

The average retirement in the UK is expected to last 19 years but the average savings pot is only expected to last for 37% of that time, according to a report from HSBC. The 63%, or 12 year, shortfall between expectations in the UK is the worst discovered by the bank’s study, which covered 15 countries and 15,000 people.

In second place in the retirement shortfall findings is Egypt, where savers face a 55% shortfall. The French come in third, facing a 53% shortfall.

Ranking Country Time in retirement Time when savings run out Savings shortfall % of retirement covered by savings
1 UK 19 7 12 56%
2 Egypt 11 5 6 37%
3 France 19 9 10 45%
4 China 20 10 10 47%
5 Taiwan 18 9 9 50%
6 Brazil 23 12 11 50%
7 Australia 21 11 10 52%
8 Mexico 17 9 8 52%
9 Singapore 17 9 8 53%
10 Canada 19 11 8 53%

HSBC predicts that the situation is set to worsen as people live longer.

Christine Foyster, head of wealth development at HSBC UK, said people expect to keep their current standard of living in old age despite failing to save enough.

‘The concept of retirement is evolving all the time, and we know many people aren’t prepared. But now we know by just how much,’ she said.

‘People are living longer, through tougher economic times, but their expectations about their standard of living in retirement remain unchanged. They are putting off the inevitable, which is the reality of significant cuts to their living standards in their twilight years, after their savings run out.’

Tallying up the cost of living with people’s savings shows that worldwide the average person will run out of retirement savings just over half way into their retirement. This means people will not be able to live the retirement they want and will not be able to cover additional living expenses, such as funding long-term care.

The study found 56% of the UK working population is not preparing adequately for later life, with one in five saving nothing. This lack of saving comes despite 63% saying their biggest fear about retirement is financial hardship.

People also expect to retire at 65 despite not saving enough and 57% of those not fully retired in Britain would still prioritise a holiday over saving for retirement. A total of 14% of people admitted they would dip into their retirement money to pay for a home or for their children’s education.

Foyster said: ‘People throughout history would have faced the question of how to provide for the future, and today’s savers are no exception. Yet as daunting as the current challenges may seem, the solution is simple: the earlier you start to plan the better prepared you will be.’

She added that this will mean either saving more, or working longer.

HSBC has set out a five-step plan to ensure financial well-being in retirement.

  1. Get real about retirement needs: work out how much income you will need in retirement and how to prepare for the unknown costs of old age.
  2. Put your savings priorities in order: work out a realistic budget and don’t overlook long-term savings for short-term savings.
  3. Don’t overlook the impact of life events on saving: put together an emergency fund so you can deal with unknown events, such as redundancy.
  4. Plan for the future: draw up a detailed written plan for the future and review is regularly.
  5. Ask the experts: use an independent financial adviser to make sure all your financial bases are covered.

8 comments so far. Why not have your say?

Income Investor

Feb 20, 2013 at 08:28

Something wrong with the last column in the table? Also, is the UK State Pension included?

Serious issue though.

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Geoff N

Feb 20, 2013 at 09:06

"This means people will not be able to live the retirement they want and will not be able to cover additional living expenses, such as funding long-term care"

I do not know of anyone who is worried about funding long term care.In view of recent govt proposals on care costs,I could open a whole new can of worms here but I think that is best left for another article.

More generally,if people save more they spend less,because that is what is required.Consider the effect on unemployment and the economy if the average savings rate increased by say 10% as people decided to reduce spending in an attempt to save for retirement.There is and never will be an answer to this problem. The average person will continue to get poorer and poorer in their old age.

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Feb 20, 2013 at 22:42

Interest rates (and gilt yields) as low as they are, and inflation moving upward (and pound being devalued) why on earth would anybody want to save for a pension!!

Save because you don't need to spend the money, can there be any other reason?

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Tony Peterson

Feb 21, 2013 at 14:27

I would be interested in the methodology employed in compiling this report.

It looks to me like "think of a scary number and frighten people with it."

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russ thomas

Feb 24, 2013 at 08:00

Typical pension sales lies.

British private pensions are by far the worst in the world. Incredibly low returns. Scandalous management charges. Managed funds consistently worse performers than indexes. Rip off annuity rates.

British State Pensions are the worst in the OECD (along with Ireland). Every Tory government makes sure that they get worse so as to force voters to buy a private pension that their rich backers can make huge profits from. Every Labour government makes sure they stay very bad so that a high proportion of voters will remain poor working class and continue to vote Labour.

Luckily the citizens have, and extensively use, the alternative - property. Britain has by far the largest % home ownershipin the world. This is the only sensible way to plan for retirement.

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Tony Peterson

Feb 24, 2013 at 10:03

You are a wise man, Russ Thomas, with an analytical mind.

I would add that ownership is the key. The ownership of your home is a vital first step. After that the way to plan for retirement is to build up direct ownership of income producing assets, held in your own name, so that you can pay your retirement bills from the dividends you receive.

The private pension industry is a government-encouraged scam. They'll start cold-calling us next.

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Income Investor

Feb 24, 2013 at 10:48

Tony & Russ,

I agree with a lot of that - but don't ignore SIPPs. You can contribute to one for your wife or kids and get the tax refund, even if you are not working (although the annual amount is limited). And you decide what to invest in..

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Tony Peterson

Feb 24, 2013 at 12:10

Income Investor

I daresay I might have been tempted by SIPPS, as I once was by NI contributions, public sector deductions, and private pension schemes.

The input side of SIPPS is fine. It's the output you have to worry about. I have now had seventeen years collecting rubbish pensions. It is only the equity portfolio that pushes me into a happy, secure, comfortable, even luxuriating lifestyle, escalating in real terms.

Once you take the tax bribe you lose control over your assets. That's an investment mistake. Russ is not just partially right. He has hit the nail on the head.

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