The Pensions Gap for Individuals
Some citizens would need to increase savings by an average of €12,000 each year to fully close the pensions gap
The scale of the pensions gap at an aggregated national level can make it difficult to understand the implications for individuals. The table below shows the average amount each person retiring between 2011 and 2051 would need to save every year in order to fully close their personal pensions gap.
Older people will need to rely on multiple strategies for generating a sufficient retirement income, while younger people have more time to increase their levels of annual pensions savings
More detailed analysis reveals that a significant proportion of the pensions gap is generated by inadequate pensions incomes for those close to retirement now (within 10 years of state retirement age). These individuals will not have time to build up adequate savings to close the pensions gap before retirement and will need to consider drawing on non-pension assets, working longer or lowering their expectations in retirement. By contrast, younger people have more time to address the gap through increased savings: there is still time to address the issue.
Middle income earners are likely to feel the greatest impact of the pensions gap
For those close to retirement, the use of non-pension assets is likely to form an element of a multi-faceted strategy to close their pensions gap. This may not be a problem for wealthy individuals with extensive non-pension assets, but for the remaining 80% of the population, non-pension assets will provide only somewhere between €420 and €1,300 per annum of additional income (again, the range depends on the assumptions around consumption and bequests). Whilst lower income groups are more likely to be provided for by state pension and welfare systems, middle income earners are likely to be the most exposed.
Implication: Individual consumers will need to take greater responsibility for their retirement savings, and do so earlier in their lives. They will need to be aware of and consider their financial situation both now and in the future. Those unable to increase the rate at which they save, or who choose not to invest for the long-term will, in all likelihood, have to work longer (and retire later) or accept a reduced standard of living in retirement.