Survey shows UK and US Pensions Crisis is Imminent

• Both UK and US drop in Global Retirement Security Rankings
• US falls due to sharp income inequality and reduced workforce to support retirees
• UK is two spots away from being in the bottom 10 for government indebtedness
• FCA’s Andrew Bailey says clear riskthat savings rate for retirement is too low
• UK’s retirement savings gap set to widen to 2.3trn due to automation of jobs
• UK expected to fall into major pensions crisis by 2028

The economics of retirement funding is at breaking point. Thanks to low interest rates, looming inflation rates and slow growth the future of our retired populations are at serious risk.

Currently there are 600 million individuals placing pressure on already-established retirement systems. This is set to get worse as the results of the last decade of financial experimentation show themselves and ageing populations widen the cracks in our economies.

Most pension schemes were formed in a time when manufacturing and traditional bricks and mortar business were the pinnacle of Western economies. This is no longer the case. Globalisation has seen countries switch to service economies. Our financial planning has failed to keep up.

Both the United States and United Kingdom are performing so badly in retirement planning that they have dropped rankings in the Global Retirement Security Rankings.

The global retirement crisis is playing out against a backdrop of a much greater economic crisis. There is slow economic growth across major nations, rising inflation levels and a major debt crisis. No-one really knows how this is going to end.

No stranger to the United Kingdom

Natxis’ Global Retirement Security Rankings sees the United Kingdom drop one place from last year. This is mainly due to a fall in it’s health score.

It is its finances sector though which is bringing it down the most and a point of real concern for pensioners of the future.

Natxis explains:

The U.K. is no stranger to pension crises. In the last five years we have sadly seen what bad planning, mismanagement and lack of government oversight can mean for pension funds. Tata Steel, Woolworths and BHS are just some that come to mind.

A Pensions and Lifetime Savings Association reportfinds that three million workers with final salary pensions have 50% chance of losing up to fifth of their income because their employers have made unaffordable promises.

The PLSA data finds the most vulnerable employers have a 50:50 chance of not having an insolvency eventin the next 30 years:

More than 11 million people rely on defined benefit pension schemes for some or all of their retirement income but there is a real possibility that without change we will see more high profile company failures such as BHS or Tata Steel.

Former pensions minister Steve Webb told City A.M. that he agrees:

It’s not enough money. It’s just brutally not enough money going in,

Just this week FCA Chief Executive Andrew Bailey made a point of the dangers looming for retirees, in his annual Mansion House speech:

There is a clear risk that the savings rate for retirement is for many people too low to meet their expectations of retirement.

For future workforces the situation is unlikely to improve. Last month pension consultantsHymans Robertson warned thata third of UK jobs were at high risk of automation by 2030.

TheFT reported:

If one in three jobs are at risk of automation by 2030, as estimated, then this would mean retirement shortfalls increase to 2.3tn, or one year’s current UK economic output.

Poor State of the United States

The United States’ new ranking puts it below the Czech Republic and Belgium. It dropped three places, down to 17th place in a global index of 25 countries.

Index producers, Natixis, explain that ‘While the country has the fifth- highest income per capita, inequality remains an area of concern given it has the sixth-lowest score for income equality.’