Pension savers are setting unrealistic financial goals for their retirement, argues a new report.
Looking at retirement savers across Britain, Italy and German, investment firm BlackRock found investors believe their savings will generate more cash than is the case.
In Britain, an average household would relish a retirement income of around £27,400 a year and targets a cash fund of £259,000 to finance their dream.
However, the firm says investors are more likely to need more than double that amount of savings to hit their income target – a fund of around £525,000.
Even an income of £27,400 is a pipedream for most retired households as the current average income for a single pensioner is £15,500.
Working out the value of investments
Expectations of a financially secure retirement are not limited to Britain.
The firm found Germans hoped for an annual average retirement income of £36,627 from a savings pot of £152,338 – when a more realistic investment fund of around £832,000 is needed to provide this level of income after giving up work.
The target pension fund in Germany is five times less than the amount actually required.
Italian retirement savers face the same problem as their expectations undershoot financial reality by £446,000.
The investment firm turns this negative into a positive for savers.
Alex Hoctor-Duncan, head of retail for Europe, Middle East and Africa, explained the reality gap for pension savers gives financial advisers the chance to tailor their services to bring them down to earth and take a more considered view of how much their retirement savings are actually worth when converted into income.
Taking professional advice
“Many people rely on the internet and media for their retirement advice, and are beginning to understand that there is another option – professional financial advisers,” he said.
BlackRock’s research showed that many savers were unwilling or could not afford professional advice.
Only 14% take up the service in Britain, while the number is higher in Europe, it’s still disconcertingly low, said the report. Only 17% of Italians consult advisors, while the number of Germans is higher, it’s still only 21%.
An average 15% in each country told the survey that they might consider professional financial advice at some time.
Investors who had taken professional financial advice were generally happy with the results.
More than 90% in each country told researchers they were ‘highly satisfied’ with their efforts at financial planning. The highest level of satisfaction was in Britain – at 96%. A similar number across each country felt taking advice was value for money.
