Rich countries where people are facing a poor retirement
Daniel Coughlin
14 September 2018
Discover how financially prepared people in your country are for retirement
Is the average person in your country set to enjoy a financially secure retirement or are they facing a drop in their standard of living? Covering 30 developed nations, the latest Global Savings Gap report from the International Longevity Centre-UK (ILC) projects the 'adequacy gap' between people's retirement savings and the amount of money they'll need to enjoy a comfortable retirement. We reveal the developed countries with the widest and narrowest gaps, some of which may surprise you.
Hong Kong
Hong Kong faces the most cavernous adequacy gap, with a shortfall of around 18% in the amount people are saving versus what they need to have saved to maintain their standard of living. This is much greater than the Organisation for Economic Co-operation and Development (OECD) average of 4.5%. Squeezed by rising living costs, particularly housing, people are simply not putting enough money aside for their golden years and, as life expectancy increases, a significant proportion of the workforce faces a financially difficult retirement.
Switzerland
Believe it or not, the Swiss workforce is among the least prepared financially for retirement, according to the ILC report. The state pension system is in disarray as a gaping financial hole grows ever deeper, and last year voters rejected plans to balance the books. At the same time, a worrying number of Swiss citizens of working age have inadequate private pension provision, adding to the crisis.
Sweden
Another surprise, wealthy Sweden is dealing with a similar situation. Savers in the Nordic country will have to squirrel away around an additional 12% of their income typically in order to retire comfortably. The culprit? Rising life expectancy. Fortunately, the Swedish government is taking steps to improve future pensions, which include raising the earliest retirement age from 61 to 64.
Singapore
Despite high personal savings rates in the city state, many Singaporean retirees will struggle to maintain the lifestyle to which they've become accustomed. The state Central Provident Fund falls way short of providing adequate provision, and savers will need to set aside about an extra 12% of their income to avoid money problems later on in life.
Norway
Another country with a wide-ish gap, Norway's shortfall is around 8%. The Scandinavian nation may boast a bumper public pension fund worth over $1 trillion (£769bn), but this still isn't enough to make up for the discrepancy between public and private pension provision, and the amount of money needed to bankroll an affluent retirement.
Spain
Likewise, Spain has a shortfall of about 8%. The figure is several percentage points greater than the OECD average. Public pension funds in the southern European country, which has one of the highest rates of life expectancy on the planet, are dwindling and the government has introduced cuts and raised taxes in an effort to boost the coffers.
France
At the present time, pensioners in France enjoy very high levels of adequacy the report argues, with public provision especially generous in the country. The issues lie ahead as the nation's taxpayers struggle to fund the bloated system, which is renowned for its largesse, and support seniors with inadequate personal savings.
Australia
As is the case in most OECD countries, the state pension system in Australia is fast becoming unsustainable as longevity in the country increases and the size of the population of over-65s grows ever larger. In fact, Australians in work will have to save around an additional 6% of their income to avoid financial difficulties in old age.
Israel
The number of over-65s in Israel is set to double by 2035, putting a massive strain on the existing pension system, which awards especially generous pensions to former members of the Israel Defense Forces. In spite of this, recent attempts at reform, which have included a proposal to raise the retirement age for women, have largely failed.
Slovak Republic
The Slovakian government has undertaken a number of key reforms that have overhauled the country's pension system, but there is still some way to go until the central European nation closes its retirement savings adequacy gap. Right now, the additional amount people in work have to save in order to enjoy a comfortable retirement is just above the OECD average of 4.5%.
Finland
The powers that be in Finland have been working diligently to improve the sustainability of the pension system, introducing a number of reforms, from raising the retirement age to adjusting contribution amounts. Yet there is still an adequacy shortfall in the country of around 5% that will need to be addressed sooner rather than later.
Greece
Since the catastrophic financial crisis of the late 2000s and early 2010s, the Greek government has made great strides to transform the economy, not to mention the pension system. As a result, the disparity between pension provision and the amount people have to save for a comfortable retirement is only slightly greater than the OECD average.
Italy
Reforms enacted in Italy back in 2011, which raised the retirement age and stopped the blanket indexing of pensions above inflation, have made the system more sustainable, but the new populist government has promised to lower the retirement age. As it stands right now, Italy has an adequacy gap shortfall of around 5%.
Iceland
Another country that has bounced back from severe financial crisis, Iceland has been reforming its pension system over the past few years. The changes, which include simplifying the system and raising the retirement age from 67 to 70, have helped narrow the adequacy gap, which is currently around 4.5%.
Portugal
In 2014, the Portuguese government raised the retirement age by a year and made cuts to the country's occupational pension system. These much-needed changes have improved the retirement readiness of the nation's workforce, but an adequacy gap of 4.5%, which is bang on the OECD average, remains.
Estonia
At around 4%, Estonia's adequacy gap is smaller than the OECD average. The country's government has been creative and more radical than most when it comes to pension reform, which has slimmed the gap. Standout proposals range from tying the retirement age to life expectancy, to providing flexible plans that give pensioners the option to defer payouts.
Denmark
The Danish pension system was praised by the authors of the ILC's Global Savings Gap report. Personal savings rates are high in the country, employer pension contributions are on the strong side and the state pension is rock-solid. Accordingly, the adequacy gap in Denmark is narrower than the OECD average of 4.5%.
Czech Republic
Since the so-called Velvet Divorce in 1993, which split Czechoslovakia into two countries, the Czech Republic has fared better than Slovakia with regard to the economy, and its citizens are more prosperous. The adequacy gap is smaller in the nation, too. According to the ILC report, it stands at just over 4%.
UK
When private savings are excluded from the analysis, the UK is actually the worst performing country with an adequacy gap of 18%. Luckily, personal savings levels in the nation are high, and workplace pension schemes are now compulsory for many workers. When these are factored in, the discrepancy is dramatically reduced.
Germany
Germany is in better shape than many countries to cope with an ageing population, if the ILC report is anything to go by. People of working age will have to save an additional 3% of their income to ensure a comfortable retirement, though an increase in occupational pension coverage should help plug the gap.
Luxembourg
Employees and self-employed people in Luxembourg are obliged to contribute a hefty 24% of their annual income to the state pension fund but are rewarded with generous regular payments when they give up work. This way of doing things makes for an adequacy gap of just 1% between what people what people are saving and how much they need to save.
Slovenia
Slovenia has a comprehensive pension system and is relatively well-fixed for an ageing population, though the model will require modifications to adjust to continuing increases in life expectancy. The state pension is robustly funded and occupational pension coverage is widespread, while personal savings rates tend to be high.
Poland
The Polish government is being extremely proactive about safeguarding pensions as the country's population ages, and is in the midst of a major overhaul of the pension system. The upcoming changes, which include creating new individual pension insurance accounts, should stand the country's workforce in good stead for their dotage.
Hungary
Though pensioners in Hungary tend to be less well-off than their counterparts in western Europe and North America, an adequacy gap is almost non-existent in the country. People of working age tend to rely on the state system, which is mandatory and combines an earnings-related public pension with a minimum pension.
Austria
Most Austrians of working age are relying on a public rather than private pension to see them through the autumn of their life, and with good reason. The state pension system is one of the most efficient and generous in the world. It's no wonder therefore that the country is not facing an adequacy gap.
Ireland
The Irish government has been successful in closing the adequacy gap in the country, and is actively encouraging higher levels of private pension coverage. The government is also planning to move to a Total Contributions Approach (TCA) for the state pension and tighten private sector regulations.
Belgium
Over in Belgium, the pension situation is even more rosy. The ILC report puts this down to the country's strong company and industry-wide pension schemes, which cover a wide section of the working population and bolster an already generous state pension, which is relatively sustainable over the long term.
Netherlands
Europe's most retirement-ready nation, the Netherlands will have no adequacy shortfall to worry about according to the ILC. A large proportion of the country's workforce is covered by comprehensive occupational pension plans, and is set for a financially carefree retirement.
USA
The US state pension scheme is far from generous, which prompts many people of working age to take out 401(k) workplace savings plans. These are more flexible than pension plans in other countries and subject to lower fees. Consequently, a relatively large number of Americans have personal financial preparations in place for their twilight years that are more than adequate for maintaining their standard of living.
Canada
Canada is the world's most retirement-ready nation by a long shot. The famous state Canada Pension Plan, which is a mandatory programme, provides generous payouts to retirees and is estimated to have at least 75 years of sustainability. In addition, personal savings rates are high in the country and private pension coverage is widespread.
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