This new report examines 30 countries and regions and finds stark intergenerational savings gaps around the world.
‘The Global Savings Gap’, supported by Prudential plc, explores the pension systems of 30 high income countries and regions, measuring performance according to affordability, adequacy and intergenerational fairness.
Low investment returns and interest rates, sluggish economic and wage growth and the gradual decline of Defined Benefit schemes means those entering the workforce today will face a hostile economic environment in which to build their pension pots. This ultimately means people will need to put more away in savings to achieve an adequate retirement income. Key findings include:
- A reliance on public provision plus any current mandatory pension schemes will only be sufficient to deliver adequate retirement incomes in 3 out of the 30 countries and regions we explored for this report.
- 28 of the 30 countries and regions examined face an intergenerational savings gap. The average amount that someone entering the workforce today will have to save to enjoy the same retirement income adequacy as current retirees is around $5,080 or 12.6% of earnings.
- If people fail to save in the USA and UK, we project that they will face an intergenerational gap in excess of $10,000 a year (over 20% of earnings.
The report considers a number of possible policy solutions to address such intergenerational savings gaps, including raising private pension coverage and contributions; raising financial capability with mass market advice and sensible defaults; facilitating longer working lives, and reducing inequality of retirement outcomes.
Dean Hochlaf, Assistant Economist, ILC-UK said:
“The combination of persistently low returns, sluggish wage growth and a changing labour market means today’s young people will need to save more to enjoy their retirement. In the UK, the government must do more to extend pension coverage and ensure that contributions towards private schemes are sufficient, especially amongst overlooked groups such as the self-employed and those on low incomes who have yet to benefit from initiatives designed to improve private savings”.
Vince Smith-Hughes, a retirement income expert at Prudential, said:
“As the ILC-UK analysis shows, action is needed now to further embed pension saving in to our workplace culture so that all, but in particular the younger, generations can look forward to a comfortable retirement.
“It’s long been our view that for most people, saving as much as possible as early as possible in their working life is the best way to ensure they have control over their financial futures and are well-prepared for a comfortable retirement.
“While speaking to a professional financial adviser can often help ensure that retirement planning is best suited to individual’s circumstances, we mustn’t forget that there is also a great deal of free impartial guidance out there from sources such as the Pensions Advisory Service or the government’s Pension Wise service.”