More than 80% worried about financial security in retirement – study

Only one in six Irish workers is confident about their financial security in retirement, according to a new study. But that it is still higher than the figure for the UK which has more extensive pension coverage, in part due to the introduction of auto-enrolment there.

The SSGA Global Retirement Reality Report by financial advisers State Street Global Advisers (SSGA) and polling group YouGov spoke to more than 9,000 people across eight countries – the United States, Britain, Ireland, Germany, Italy, the Netherlands, Sweden and Australia. It canvassed the views of people who have just joined the workforce, those established in employment and those who have already retired.

In Ireland, more than 600 people were surveyed, including 54 who had recently retired. The rest are still working, though almost 150 are planning to retire in the next five years.

Although only 15 per cent of Irish people questioned feel confident now about their financial position in retirement, a quarter remain comfortable that they will able to retire when they plan to, though 40 per cent of respondents plan to do some part-time work in retirement.

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SSGA suggests that the greater confidence in Ireland may be due partly to the higher State pension here – up to €238 per week compared to £126 in the UK.

“However, there were some feelings of regret from those who had recently retired,” it said. “When asked what they would do differently, almost half the people surveyed said they would have thought more about the age they retired.”

Unrealistic

The survey also found that people continue to have unrealistic expectations about their financial well-being in retirement.

“The expectations of the working population [about income in retirement] are considerably higher than those recently retired,” the report states.

People who have yet to retire said they expected their retirement income would be about 63 per cent of their net current earnings. However, people who have recently retired report that income is actually about 47 per cent of their working earnings. That’s the lowest retirement-to-working income ratio of all the countries surveyed apart from Australia.

It is also the biggest gap among the eight countries. Pensioners in the UK and the Netherlands were actually getting more in retirement than they had expected ahead of time.

When asked how much of their current income, they think they would need to have in retirement, close to one in five had no idea.

Reliance on property as a source of pension income is falling, according to the survey. Only 3 per cent of people expect to use equity release to free up money from what is generally people’s most valuable asset – their family home.

Buy-to-let rental income is seen as an option by just 8 per cent of respondents.

The survey did not attempt to understand what underlines the expectation of respondents but SSGA questions whether the continuing issue of negative equity or the fact that a growing number of people might not be in a position to pay off their mortgages fully before retirement might be factors.

Cautious approach

Other issues include children staying in the family home for longer as they struggle to get on the property ladder. And, even for those who have recovered, the property crash has undoubtedly led to a more cautious approach about the ability of property to deliver an income.

Tellingly, almost three-quarters of people questioned (74 per cent) feel that it is their own responsibility to provide for their retirement – rather than relaying on their employer or the State to do their thinking and planning for them.

This, says SSGA, augurs well for the success of auto-enrolment which the Government plans to introduce in Ireland from 2022.

“In order to accumulate enough savings to fund a sustainable retirement, people will need to divert a meaningful amount of their earnings into their pension,” SSGA said. “Ownership and awareness are vital in order for auto-enrolment to work beyond the point of inertia.”

In terms of assessing their options in planning for retirement, more than one in three said they were only slightly aware of their options, or not aware at all. Women, medium earners and people aged between 45 and 54 were the least comfortable about the options available to them, SSGA said.

Interestingly, the proportion of Irish people likely to turn to friends or family for advice – as against professional advisers or their employers – was double the figure for the UK, at 31 per cent, and almost eight times higher than in the US.

Asked what advice they would give to people still working, close to seven out of 10 pensioners said they would urge them to start saving earlier. Thirty-seven per cent said they would save more.