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The Pensions Gap across Europe

Across the European Union, the annual pension gap stands at €1.9 trillion

There is currently a disparity between the levels of pension provision people are set to receive and the level of provision they need in retirement. Aviva has quantified this "pensions gap" by looking at the additional annual amount which citizens retiring between 2011 and 2051 would need to save - in addition to their existing anticipated state and private pension income - in order to ensure an adequate lifestyle in retirement.

Here "adequate" is defined as an average retirement income of 70% of pre-retirement income (a level used by the Organisation for Economic Co-operation and Development (OECD) and in line with our own consumer research - see Technical Details for more information.

Following this approach and looking exclusively at pensions assets, Aviva’s research shows that European citizens must find an additional €1.9 trillion in savings every year to fully close the pensions gap. That’s the equivalent of 19% of 2010 GDP and is higher than the estimated cost of the recent economic crisis².

In addition the pensions gap has been quantified for Russia and Turkey at €401.7 billion and €91 billion respectively to allow comparison and analysis against non-EU27 countries.

The pensions gap varies substantially between countries. In absolute terms, the largest shortfalls can be observed in Western European economies – the UK, France, Germany and Spain. These countries have larger populations and will therefore see more people retiring. These countries also have some of the highest levels of pre-retirement income across Europe which means that the levels of retirement income people in those countries need in their retirement have been estimated to be higher than in other markets.

Quantifying the annual pensions gap in Central and Eastern European countries triggered further reflection on what influences the gap and what the future will hold. In many of these countries the gap is smaller than in their Western counterparts, possibly demonstrating the effect of recent reforms to their pensions systems specifically designed to address issues of adequacy and sustainability.

Assumptions around wage inflation and informal earnings significantly influence the size of the gap in Central and Eastern European countries. Aviva has assumed that wages in these economies will, over time, converge with Western European economies, but has excluded informal earnings from the analysis. If estimates for informal earnings were included, the pensions gap would be almost 60% larger.

² Fiscal implications of the Global Economic and Financial Crisis (IMF, 2009)