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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.
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||
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.
- 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.
- Put your savings priorities in order: work out a realistic budget and don’t overlook long-term savings for short-term savings.
- 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.
- Plan for the future: draw up a detailed written plan for the future and review is regularly.
- Ask the experts: use an independent financial adviser to make sure all your financial bases are covered.
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