The world’s six largest pension savings systems are expected to reach a $224 trillion (£174 trillion) gap by 2050 due to longer lifespans and reduced levels of savings, according to the World Economic Forum
The World Economic Forum’s report predicts that if China and India are also added to the six largest pension saving systems in the UK, US, Japan, Netherlands, Canada and Australia then the combined savings gap reaches $400 trillion by 2050.
Gaps in access to the pension system and the growing life expectancy need to be addressed as they are the key reasons behind the widening gap.
The gap is the largest in the US where a current shortfall of $28 trillion is projected to rise to $137 trillion in 2050. The UK’s $8 trillion gap is expected to rise to $33 trillion and china has the second biggest gap with $11 trillion to rise to $119 trillion.
Ben Simpson, CEO of Menzies Wealth Management, said: ‘The sooner we put to bed the notion of retirement as a specific point in time event the better. For many people, without the benefit of a public sector pension, a phased retirement involving part-time work or reduced hours in combination with a smaller amount of pension is already an economic reality.
‘Some people will want to work longer, and this is something we should welcome as a society. If we can find a way to utilise the knowledge and experience of our ageing workforce whilst making accommodations to working practices, for example reduced hours, we may achieve a win-win situation for everybody.
‘Ultimately, it is about taking control of your financial future. If you don't want the state or your employer to decide your retirement age then act early and start saving now. Frankly, it doesn't really matter whether it's into pensions or an ISA - it's really about getting into the habit of regular saving at an early age, and reaping the benefits of compound growth.’
The savings gap resembles the amount of money required in each country (including contributions from governments, individuals and employers) to provide each person with a retirement income equal to 70% of their pre-retirement income.
The report makes five recommendations to address the gap. These are:
- review normal retirement age to increase in line with life expectancies;
- make saving easy for everyone, for example the UK’s auto-enrolment pension system;
- support financial literacy efforts – starting in schools and targeting vulnerable groups;
- provide clear communication on the objective of each pillar of national pension systems and the benefits that will be provided; and
- aggregate and standardize pension data to give citizens a full picture of their financial position
The World Economic Forum’s report: We’ll live to 100 – how can we afford it? is available here.