Every inhabitant of the Czech Republic who will retire in the period between 2011 and 2051 should save on average 114,310.00 Czech crowns every year in order to avoid facing significantly lower living standards in retirement, and this applies even presupposing that the State will carry out retirement reform to ensure sufficient funds for paying pensions.
Every inhabitant of the Czech Republic who will retire in the period between 2011 and 2051 should save on average 114,310.00 Czech crowns every year in order to avoid facing significantly lower living standards in retirement, and this applies even presupposing that the State will carry out retirement reform to ensure sufficient funds for paying pensions. This is the outcome of a study by Europe's leading Aviva Insurance Group, which calculated that Europe's annual retirement deficit is € 1.9 trillion (47.21 trillion Czech crowns). In the Czech Republic this annual retirement savings deficit stands at 628.7 billion Czech crowns.
With the publication of the results of the complex study carried out by the consultation company Deloitte, the insurer Aviva has revealed a significant retirement savings deficit in each of the EU countries. The resulting analysis indicates the difference, ie the deficit, between the retirement savings that people retiring in 2011–2051 will need to make to ensure adequate living standards in retirement (ie 70% of their income before the retirement) and the amount of pension that they might eventually expect.
The total retirement savings deficit in Europe (ie all 27 EU countries) stands at €1.9 billion, which represents 19% of the GDP in the EU for 2010. In terms of individual EU countries, the largest differences are in the UK, France, Germany and Spain. The countries of the former Eastern Block are in a slightly better position; eg the Czech Republic occupies the fourth position behind Lithuania, Hungary and Ireland. This is largely due to the smaller size of the population but also to reforms of the retirement systems already completed in some countries in the past 20 years.
Another important factor is the quite rapid aging of the European population. According to estimates, the ratio of pensioners to working people will have changed from 1:4 in 2010 to 1:2 in 20601. For the generation of today's 30–40 year olds this means that they will have to accept a large part of the responsibility themselves for what living standards they can expect in their retirement. They now have the opportunity to make preparations for their years of retirement but at the cost of reduced spending during their productive years.
"Due to demographic changes affecting not only the Czech Republic, the situation of financing retirement is absolutely unsustainable in the long term. The people who will retire in the next ten years will have to save up significantly more for their retirement than the younger generation," warns Jiří Schneller, the general manager of Aviva Life Insurance.
"For example, today's forty year olds will have to save over 52,000 Czech crowns every year. If they can't do that, they will have to either work significantly longer or accept substantially lower living standards in their retirement," Jiří Schneller adds.
The study also points out further possibilities, however inadequate, for eliminating the €1.9 trillion retirement savings deficit:
- Ensuring a comfortable old age with the help of non-retirement assets: Non-retirement assets (eg tangible assets or real estate property) held by EU citizens could be used to cover only 20% of the retirement savings deficit.
- Later retirement: Increasing the age limit for retirement in individual countries by 10 years would result in decreasing the retirement savings deficit from €1.9 trillion to €841 billion.
- Significantly lower living standards: If pensioners could manage on 50% of their original income, the retirement savings deficit would go down to €669 billion.
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For more information please contact:
Milan Starý, Marketing Manager Aviva životní pojišťovna, as
E-mail: milan.stary@avivazp.cz
1 Prognosis of the old age dependency ratio in the 27 EU countries (2010-2060), Eurostat.