Executive Summary

Introduction

Growing pressure on Europe's pensions systems caused by ageing populations is a widely acknowledged problem, with the ratio of retirees to workers only set to increase
This report explores the adequacy of future pension provision by systematically quantifying Europe's "pensions gap"
The pensions gap shows the difference between the pension provision that people retiring between 2011 and 2051 will need for an adequate standard of living in retirement and the pension amount they can currently expect to receive
To construct a full picture of retirement provision the report goes on to consider the levels of non-pension assets that people hold and investigates consumers' attitudes to retirement

Across the European Union, the annual pensions gap is €1.9 trillion, around 19% of 2010 GDP. This assumes that, on average, people need 70% of their pre-retirement income to provide an adequate standard of living in retirement and a 5% return on investments in pension funds

Further analysis reveals that no single lever can close the gap completely on its own:

Increasing the rate of return from 5% to 8% still leaves a pensions gap of €1.66 trillion
Increasing the state pension by 10% still leaves a pensions gap of €1.59 trillion
Getting by on only 50% of pre-retirement income leaves a pensions gap of €669 billion
Increasing the national retirement age by 10 years leaves a pensions gap of €841 billion
Non-pension assets may only fund as little as 20% of the pensions gap

At an individual level, some people will need to increase their savings by an average of €12,000 each year to fully close their personal pensions gap
Older people will need to rely on multiple strategies to generate sufficient retirement income, or work longer, while younger people have more time to increase their levels of annual pensions savings
Middle income earners are likely to feel the greatest impact of the pensions gap

Retirement worries are common, but this has not led to reduced expectations surrounding income levels in retirement
European citizens still expect to rely heavily on their national state pension to fund retirement

At a European level:

The pensions gap is significant and will only increase unless urgent action is taken
Action will need to include a combination of reforms and changes in consumer behaviour
There is a need to increase people’s awareness that they should start saving as much as possible, as early as possible

At an individual level:

Individuals need to take greater responsibility for their own retirement provision
The biggest influence on an individual's ability to maintain their standard of living is how much they save during their working lives relative to their retirement expectations
Non-pension assets, such as property, are only part of a wider strategy to cover an individual’s retirement needs

To address the pensions gap and incentivise higher levels of saving, Aviva calls on:

The European Commission to create a European Quality Standard for Pensions to restore consumer confidence in pensions savings vehicles, and to establish and monitor a European Pensions Savings Target so that national governments are encouraged to rebalance their pensions systems with greater funded schemes
National governments to work towards issuing regular pension statements to all adult citizens so people can clearly see how much they stand to receive in retirement, and review the effectiveness of incentive schemes for saving into a pension so that it always pays to save for your retirement