A colleague was reminiscing last week about a seminar he had been to, shortly after the new pension freedoms were introduced in 2015 in the UK. The seminar had discussed, amongst other things, how other countries had behaved in the wake of similar pension liberations.
My colleague had particularly remembered this part of the seminar because it had been suggested that behaviours had matched national stereotypes, with the Swiss playing safe and buying annuities and the Americans generally taking more cash out and not saving enough. I asked him about the UK.
“Somewhere in the middle.” he replied. Sounds about right then – but it’s all anecdotal as he couldn’t remember the source.
One thing we do know however, is that countries vary considerably in how much they save on average per capita for retirement. In 2013 HSBC carried out a study into retirement provisions across 15 developed countries worldwide. Here are some of the findings:
UK: Retirement Roundup
- The average retirement savings amount in the U.K. is £73,000
- Those who have financial plans and have received professional advice (about 40% of U.K. households) averaged a savings of £123,000
- Only about 60% of respondents stated that their retirement savings were adequate
- Just over 80% of all retirement income came from a combination of government and corporate pensions
Hotspots & Notspots: Which nations have the best retirement?
- Denmark, the Netherlands and Australia are ranked first, second and third in the report respectively for retirement readiness
- Singapore is one of the best prepared nations for retirement, with 88% of respondents stating that they were able to save enough during their working years to retire comfortably
- USA: 24% of respondents still described themselves as not at all confident in their savings. Notably, the least confident respondents tended not to have a specified retirement plan.
- Malaysia: Half of those who were not prepared for retirement did not realise that they were underfunded until after they had stopped working.
So why do countries differ so much? Economic circumstances clearly play a part – after all it is easier to save when you have more money. Culture is extremely relevant too, as many generations will have “inherited social values” that do not prioritise saving for later life.
The biggest factor is undoubtedly the extent of government intervention in retirement planning. There are many examples, but Singapore is a good one:
The Singapore government has created a compulsory social security savings plan called The Central Provident Fund (CPF). All working Singaporeans and their employers must make monthly contributions into three CPF accounts.
- The Ordinary Account can only be used for specific expenditures such as investment, education, CPF insurance and/or to purchase a home.
- The Special Account is earmarked for a person’s elderly years and investments in retirement-related financial products.
- The Medisave Account can be used for medical expenses, including approved medical insurance.
It is interesting to observe recent UK initiatives like the new Lifetime ISA and auto-enrolment. These are both clear steps that the UK government has taken to encourage the cultural shift that will be necessary to prioritise saving for retirement.
But you can’t change where you are born. However, there is clear evidence in the HSBC report that those with a financial plan in place are much better prepared than others for retirement.
The logic has always been for me that knowledge is power. It doesn’t matter how much or how little you have – knowledge is the key. I sometimes manage to help people retire some years earlier than they thought they could- they just didn’t know they could.
Knowing what you have allows you to make a plan. Knowing what you want makes that plan tangible. And knowing what you need to do is what makes it happen.
So, in the absence of a time machine or magic wand to relocate yourself to another time and place, you might want to stay in the UK and equip yourself with a good Financial Advisor.
But I would say that, wouldn’t I? Until next time, thanks for reading,
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This post was written by Huw Johns