Survey points to UK retirees being let down by a poor long term financial environment for savings and investment
In a blow to the outlook for the welfare of retirees, the United Kingdom ranked only 18th globally, behind other leading European countries regarding its capacity to meet retirement security needs and expectations, according to the 2014 Global Retirement Index, an analysis of 150 countries published today by Natixis Global Asset Management (NGAM). The UK’s overall ranking was relatively weak due to the financial challenges faced by retirees planning for their long-term future. “Against this backdrop, it is more important than ever for UK savers to do more to take individual responsibility for their own financial security and view saving for retirement as an essential part of everyday life,” said Chris Jackson, Head of UK Retail for Natixis Global Asset Management.
The 2014 Global Retirement Index is based on analysis of 20 key trends across four broad categories: health and healthcare quality; personal income and finances; quality of life; and socio-economic factors. Together, these trends provide a dynamic measure of the life conditions and well-being expected by retirees and near-retirees in each country. The UK was dragged down to an overall 18th position by a poor ranking of 77th out of 150 in the Finances in Retirement Index; one of the lowest rankings amongst western nations. Old age dependency (135th), stagnant low interest rates (117th) and high tax pressures (130th) are all challenges which have affected retirees’ current income and purchasing power, whilst also increasing pressure on the UK pension system.
The difficult financial situation facing retirees has left many UK savers unsure of how to reach their retirement income goals. A 2013 Natixis Global Asset Management study of 750 UK investors1 found that the UK’s finances and market uncertainty weigh heavily on the minds of investors. Virtually all savers (93 percent) said they are concerned about the UK’s current financial standing and respondents cited market conditions significantly reducing their savings as the top threat to their financial security in retirement. In another sign that market conditions are eroding confidence, nearly three quarters (73 percent) believe their own home is a better investment than the stock market.
In the event of their retirement funds falling short, nearly half of savers (40 percent) plan to lean on the government – and the tax payer – and 19 percent plan to rely on their children, demonstrating a generational change in terms of who is providing financial assistance within UK households. The UK ranked 31st out of 150 in the Material Wellbeing Index (which measures income and consumption patterns) and 56th for income equality (distribution of household or individual income across the economy), a factor that can considerably impinge on those looking for financial stability at retirement. These were offset by high rankings on health and environmental factors, the UK ranking 22nd on overall health expenditure per person and 4th on the Quality of Life and Environmental Index based on environmental factors (such as air and water pollution).
Further help needed for savers looking to meet their retirement income goals
It is more important than ever for current retirees – and younger generations – to get the professional advice they need to address these retirement challenges. When it comes to planning, the same survey of UK savers2 found 80 percent of investors admit their investment knowledge is not very strong, 54 percent do not have clear financial goals and, of those who do, nearly two thirds (64 percent) do not have a plan in place to reach them. In fact most (52 percent) prefer to plan their holidays rather than keeping an eye on their investments.
“The UK is facing major challenges to the creation of a financial environment for savings and investment strong enough to meet the needs of retirees. As with other nations, the challenges posed by aging populations, increased life expectancies and soaring financial burdens will continue to grow,” said Jackson. “Investors should focus on what they can control by saving more, staying invested, having a solid financial plan with defined goals, building more durable investment portfolios, and setting personal benchmarks to measure their progress along the way. Financial advisers and asset managers both have a role to play in helping shape positive retirement outcomes.”
While the developed world continues to rank highly overall, financial security for retirees shows signs of erosion in many developed nations where governments face continued financial challenges and increasing demand from ageing populations. Government debt, inflation and fiscal policies could have a profound effect on future retirees, austerity-driven cuts are just now beginning to be measured, and savers need to plan for these trends to intensify. In developing markets, the provision of government services has not kept pace with economic growth, and income equality is preventing widespread financial security. Even in the highest-ranking countries, future demographic shifts will exert pressure and future retirees need to be planning today for those changes.
“Investors need to plan to do more on their own,” said Hervé Guinamant, President and CEO for International Distribution at Natixis Global Asset Management. “And the asset management industry must adapt by providing the tools investors need to build portfolios that put risk first, minimize volatility and help meet their long term savings goals.” Retirees in European countries enjoy the greatest financial security in retirement, with eight of the top 10 places among the 150 nations. Countries heading the global list include top-ranked Switzerland, second-ranked Norway (last year’s no. 1), Austria, Sweden, Denmark, Germany, Finland and Luxembourg. Australia and New Zealand are the only non-European countries to break into the top ten global.
