Sunday, January 12, 2014

How do Europeans see Retirement

According to pan-European research conducted by Allianz and Allianz Global Investors, many 50 to 70 year olds are uncertain if they can maintain their current standard of living in retirement. Half of the respondents are not certain whether they can keep their living standards when retired; among the younger segment of the sample the group is even larger.

The study looked at retirement finance of 1,402 respondents, aged 50-70 years, living across seven European countries: Austria, France, Germany, Italy, Netherlands, Switzerland and the United Kingdom (UK). It found that half are uncertain if they can maintain their standard of living in retirement with many needing to build additional savings to maintain their existing standard of living.

The younger respondents tended to have an altogether more pessimistic outlook. This group were particularly concerned about maintaining their standard of living due to the consequences of pension reforms and the impact of the financial crisis on their financial and pension wealth. Only 40% of 50-to-54-year-olds think they will have the same standard of living in retirement. In contrast, 53% of those aged 60-70 are optimistic or already enjoy a relatively comfortable standard of living.

Inflation is cited as the biggest financial risk in retirement in all countries (except Austria). In Germany and UK this is particularly apparent with 60% of Germans and 65% of Britain's citing inflation as the greatest financial concern to potentially impact their pension. However, when tested on their understanding of the effects of inflation, respondents in the UK and the Netherlands tended to overestimate and Austrians tended to underestimate its impact. French, German and Swiss respondents were most realistic about the effects of inflation.

Despite some people misinterpreting the risk that inflation poses, the research showed the majority of 50+ respondents feel they are well informed about financial matters and use a wide variety of information sources. However, while there is a wealth of information available, what matters to pension savers is its usefulness so that investors can both understand it and know how to act in response to it.

There are differences between countries: Elderly in Switzerland and the Netherlands are more optimistic which might be due to the countries’ pension systems with (quasi) mandatory occupational plans.

Nearly two thirds of the respondents said they are satisfied with their retirement planning, only 8% said to be dissatisfied, Swiss respondents are the most satisfied at 81%, with only 2% "dissatisfied"). The overall level of satisfaction with retirement planning is significantly lower in France (46% "satisfied" and 11% "dissatisfied") and Italy (54% "satisfied" and 14% "dissatisfied").

The survey also reveals substantial national differences with regard to the preferred payout method upon entering retirement: Half of Swiss respondents prefer life-long monthly or annual payments compared to only one quarter to one third in the other countries. Austrian and German prefer by far one-off lump sums (40% and 37% of the respective respondents) other the 50+ generation in other countries.

UK respondents stand out when it comes to investment decision making. Nearly half of the respondents from the UK said that they make their own investment decisions without the assistance of an investment professional or adviser, Only Dutch respondents with 42% are nearly as self-directed in their decision making. In Switzerland the share of respondents not seeking external advice is lowest with 23%.

The 50+ generation in the seven European countries is relatively autonomous in financial planning. They largely save and invest without professional advice or only include an advisor for special needs. The main issue for not using financial advisors is trust

Preferences for pay-outs of financial wealth are split between regular payments and lump-sum disposal. In addition to regulation requirements of the countries’ pension system, the results are also dependent on financial obligations in retirement. Swiss and Dutch interviewees prefer regular payments, which might be related to their obligation of paying off mortgages.

Dr Renate Finke, senior economist in the International Pensions unit at Allianz and author of the study, said: "Retirement planning is crucial to ensure ease of living in later life, but many of those surveyed admitted to making mistakes in their approach, with one third of respondents saying they started planning too late and one in four highlighting that they did not save enough. "

Nick Smith, head of European Retail Sales added: "Pension savers face an uncertain landscape including inflation risk, volatility and the challenges posed by reform processes. These are forcing people to adapt to changing situations. People saving for pensions need to look at what lessons can be learned from the 50+ generation, especially as the last decade has shown that it is a difficult task to factor in the various investment risks."

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