Recession knocks European savers for six
In the last quarter of 2009 the sub-prime crisis was knocked from its pedestal to be replaced by a graver threat to the global economy. Suddenly we weren’t worried about one or two banks collapsing; but rather whether entire countries would fold. Had one of the PIIGS (Portugal, Italy, Ireland, Greece or Spain) – so named for their apparent lack of fiscal discipline – defaulted on their debts they would’ve brought the entire European Union down with them.
The sovereign debt crisis forced governments across Europe to seriously rethink their finances. Step one was to establish what had brought these economic powerhouses to their knees. It didn’t take too many economists to provide the basic answer. Governments with social leanings, bloated public sectors and ageing populations were simply expending more on social services and wages than they could hope to recover from their dwindling tax bases. Already skating on the proverbial “thin ice” these economies were dealt a death blow by the largest recession in 70-years.
Socking it to the retirees
As a result of the crisis many European countries are reassessing their mandatory retirement ages. And unlike South Africa – where government decided to “lower” the average retirement age to 60-years – these governments are asking their citizens to work for longer. Imagine government telling you to stick with your day job until you’re 70 or 75-years of age! To find out what’s happening across the European retirement landscape we looked at a recent European Employee Benefits Benchmark distributed by Aon Consulting: Retirement. Their discussion paper – titled Expectations versus Reality: Meeting Europe’s Retirement Challenge – makes for some interesting reading.
Four dominant concerns among European Union employees
What occupies the mind of a typical EU employee as he/she thinks about retirement? The survey points to four main concerns – namely health, enough savings, living standards and inflation. These concerns are fairly consistent with those expressed by South African savers. Health is always an issue – given the prevalence of ailments in old age – and the ridiculous annual escalations in healthcare costs. The “have we saved enough for retirement” has a common thread too – with local product providers drumming the message home at every opportunity. Concerns over the erosion of living standards through retirement and the fear of inflation wiping out savings are mutual too.
The report refers to a number of country findings. Respondents in Ireland, Spain and the UK are extremely concerned with paying off their outstanding mortgage obligations before retirement. This trend is evident in South Africa – with most people banking on being able to stay in their primary residence “bond free” through the first stages of retirement. But we’re more interested in the survey findings on retirement age.
Average retirement age on the rise
“Most European employees now expect to be working beyond the official retirement age,” writes Aon. This creates a number of problems in society. We’re not accustomed, for example, to accommodating employees into their 70s. Across Europe, a massive 34% of the survey respondents were happy with the idea of minimum state retirement ages being raised. Pushed for further comment, these individuals said they would probably work between two and five years longer.
There are people who prefer the “early retirement” option. For example, 29% of respondents said they would prefer to stop working earlier and receive less income – and another 26% said they’d top up their retirement fund so as to retire at the age they originally planned to.
The colonialists share their replacement ratios
South African actuaries say you should aim for a replacement ratio (percentage of first year retirement gross income expressed as a percentage of you final gross income) of some 75%. Aon notes: “Across all the countries surveyed, over three-quarters of employees considered they would need 60% or more of their current salary for a comfortable retirement, yet only one-third believed this was achievable.” Filtering out for Europe only and the expectation is for a more realistic ratio of 74%. As with all surveys the responses become a bit nonsensical. For example – 25% of European respondents claimed to be “very interested” in pension planning. But 5% of this segment isn’t planning to get a pension at all – and 7% think pensions are a “con”.
We’ve heard the “con” argument in South Africa too. A couple of days ago – while discussing saving for retirement – our audience expressed dismay at the dismal transparency / return on many “early” retirement annuities and pension funds. The damage to the long-term savings industry caused by unscrupulous life companies is as evident today as it was ten years ago.
Editor’s thoughts: Europeans are waking up to the harsh reality their governments cannot support them through retirement – at least not in the style they’ve become accustomed to. Back home, our state old age grant is barely enough to feed a small family... If you’re short of capital at retirement your options are limited. Would you consider working a couple of extra years beyond your “planned” retirement date? Add your comment below, or send it to [email protected]
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