Retirement

Facing up to Scotland’s
retirement challenge

BlackRock |16-Sep-2016

Scots of all ages face a steep savings challenge for retirement, according to the latest BlackRock Investor Pulse survey.

Scots of all ages are underestimating how much they need to save for retirement, BlackRock’s latest Investor Pulse survey has revealed.

The survey – which examines the savings, investment and retirement habits of 4,000 individuals in the UK – found that those in Scotland would on average like an annual retirement income of £22,000. When asked how large a pension pot they will need to generate that, they thought £186,000 would be sufficient.

That’s a lot, but sadly it’s nowhere near enough: in fact they will need more than treble that amount. Yes, for an annual retirement income of £22,000, Scots will require savings of around £700,000 (based on BlackRock’s Cost of Retirement Index (CoRI) for a 65 year old retiring today, as at 3 September 2016, with a 2.5% cost-of-living adjustment and the state pension at the maximum allowance of £155.65 per week included).

Millennial savings gap

The challenge facing Scottish millennials is particularly steep: fewer than four in 10 Scots aged 25-34 have started to save for retirement, according to the survey. Indeed, almost a third of millennial Scots felt they were too young to save for retirement even though they hoped to retire, on average, younger than their parents at the age of 64. That savings gap becomes even starker when you consider that the average 30 year old in the UK today can expect to live to around 90 (source: How long will my pension need to last?) and one in five will live to 100.

In total, 43% of Scottish people have still not started to save for retirement, but only four in 10 of them are concerned about outliving their savings in retirement. That is a worrying disparity.

Even among those who are saving, there is a heavy reliance on cash savings, with two-thirds of personal savings and investments – outside a pension – in low-yielding cash products. With interest rates now at a new historic low and unlikely to rise any time soon, people need to understand that leaving their cash in a bank account is generating too little a return.

Of course, this is not just a Scottish phenomenon; our survey uncovered the same lack of understanding across the rest of the UK.

Trying to save in your younger years will give you a healthy head start

Making life easier in retirement

Within the financial community, we have to communicate to people that they need to start planning for retirement earlier and – just as importantly – that there are concrete steps they can take today to make life easier in retirement.

For example, putting aside just £50 a month to invest in the FTSE All Share index over the past 25 years would have turned into a pot worth almost £40,000 today (source: BlackRock, FTSE All Share Total Returns Index from 31/12/1990 – 31/12/2015 based on £50 monthly savings plan). Saving, then, doesn’t necessarily have to mean spending less; it’s just as important to make your money work harder for you by investing it rather than leaving it to stagnate in a low-interest cash account.

So even if it seems like a financial stretch today, trying to save in your younger years will give you a healthy head start when it comes to building a nest egg for retirement. Failing to act now could mean being forced to work longer than you plan to, having to scale back on your retirement bucket list, or simply running out of money in later life. Invest today, and spare yourself that pain in retirement.

Jeremy Roberts
Managing Director, Head of UK Retail Sales
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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 30 August 2016 and may change as subsequent conditions vary.
BlackRock Investor Pulse survey, conducted in association with research agency Cicero Group from July to September 2015 amongst a nationally representative sample of 31,000 individuals in 20 countries aged 25 to 74 years old, of which 4,000 were UK residents. The results of this survey are provided for information purposes. The conclusions are intended to provide an indication of the current attitude of a sample of citizens in the UK to saving and investing and should not be relied upon for any other purposes. The opinions expressed are those of BlackRock as of November 2015 and are subject to change at any time due to changes in market or economic conditions.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy.

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