BETTER FINANCE has been monitoring the performance of EU pension and long-term savings since 2013, with its 6th edition of the “The Real Return” by now covering 16 countries and over 85% of the EU population. Unfortunately, the dire state of pension savings across the EU has not improved much over the years. Despite a six-year bull market both for European equities and bonds, the outlook for European pension savers remains bleak.
Opacity
Carrying out this research was once again very challenging for BETTER FINANCE, given the severe and increasing lack of transparency on the actual returns of long-term and pension savings in the EU.
Europe’s pension savings gap remains extremely worrying, exceeding €2 trillion a year which is about equivalent to 13% of Europe’s GDP . This is by far the biggest financial issue facing EU citizens, their children, and grandchildren.
With government pensions on the decline, and occupational ones covering only a minority of the needs of EU citizens, Public Authorities claim that the only solution for EU citizens is to save more and earlier for retirement. We beg to disagree. This advice ignores a key reason as to why too many long-term and pension savings are failing to provide for an adequate replacement income: insufficient and sometimes even negative long-term real (net of inflation and fees) returns.
In fact, saving “more and for longer periods” will not even remotely address the issue by itself, since even saving 10% of activity income for 30 years with a zero real net return, will only provide about 12 % of one’s activity income through retirement.