White Papers

Global Investor Study: Are investors too reliant on the state?

Governments are struggling to balance their books and the global economy is in a precarious state, yet investors firmly believe that the state will still be able to contribute significantly to their retirement income. So, are investors being realistic or setting themselves up for a fall?

15/07/2016

Investors are realistic about how long they will live in retirement (21.2 years) and the need to diversify their sources of income for retirement, but are investors too optimistic about how much the state will be able to contribute to their retirement income?

Schroders 2016 Global Investor Study found:

  • Investors, on average, believe a state pension will contribute 18.8% of their retirement income

Given the precarious state of the global economy is this a major concern?

The long-term fallout from the financial crisis and the lingering effect of loose monetary policy and austerity measures are yet to be fully understood.

If anything, the value of a state pension is likely to fall rather than rise as governments struggle to control deficits, spiralling debts and the unintended consequences of measures designed to boost economic growth.

Set up for a retirement shortfall

Combined with investors’ over-optimistic expected return on income (9.1%) and short-term investment horizons (3.2 years), it could lay the foundations for future financial problems.

If investors anticipate the state riding to their retirement rescue then they are likely to see a shortfall in their retirement income.

Sleepwalking into a retirement crisis

While most developed nations currently offer a healthy state pension, the future is less certain, unless the global economy stages a dramatic recovery and governments are able to raise taxes.

 

Source: https://conversation.which.co.uk/money/uk-state-pension-comparison-serps/

Schroders Global Investor Study 2016 reveals that investors are potentially sleepwalking into a financial crisis later in life.

With the average retirement age rising, pension deficits expanding, and the global economy struggling to recover from the credit crisis, it is clear the writing is on the wall: investors need to be doing more now for themselves and relying less on the state.

Important Information:
Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article. They do not necessarily reflect the opinions of Schroder Investment Management Australia Limited, ABN 22 000 443 274, AFS Licence 226473 ("Schroders") or any member of the Schroders Group and are subject to change without notice. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this article. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this article or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this article or any other person. This document does not contain, and should not be relied on as containing any investment, accounting, legal or tax advice. Schroders may record and monitor telephone calls for security, training and compliance purposes.