SEB survey: Half of today’s salaried workers may be in risk of poverty at retirement age

The Baltic Retirement Readiness Index calculated based on an SEB survey highlighted important concerns in connection with the preparation of the citizens of the Baltic States for their retirement. According to the results of the survey, Estonian residents are more prepared for their retirement than their Baltic neighbours; nevertheless, insufficient financial security of many people at their retirement age and the risk of poverty still remain a large concern.

The index is an indicator of the retirement readiness of the Baltic population based on four main parameters: retirement awareness, trust in the pension system, people’s actual behaviour, and confidence in their future pension. Estonia’s Retirement Readiness Index reached 36 (on a scale of 0 to 100), while in Lithuania and Latvia, it was 33 and 29, respectively. Despite Estonia achieving the best result, the survey of 2,400 private respondents concluded that nearly 50 per cent of Estonian residents may be in risk of living below the poverty threshold – that is, receiving a pension that is less than 60 percent of the country’s average wage. According to income statistics, in 2013, any person with an equivalent net income of less than 358 euros per month lived in relative poverty and any person with an equivalent net income of less than 205 euros per month lived in absolute poverty.

Indrek Holst, Chairman of the Management Board of SEB Life and Pension Insurance: “Prognoses indicate that state pension and the second pension pillar guarantee private people 40 per cent of their pre-retirement income. The third or supplementary pension pillar that would raise the pension compensation rate to 65 per cent of their pre-retirement income and would guarantee citizens a more worthy pension is considered everyone’s own personal responsibility. People do feel the need for financial security at their retirement age but for many reasons, they delay making concrete decisions connected with it. One of the reasons for delaying them definitely lies in the fact that people do not know how to make long-term financial plans and, in addition, they lack sufficient trust in the existing system. These factors, along with a rapidly aging population, continue to increase the pressure on the state budget and the social system. It is true that nothing will happen tomorrow but in the long run, the problem increases with each passing year.”

Every other pensioner can only rely on state pension

People with a lower education and a smaller income with less time left until retirement age, that is, people who have a shorter pension saving horizon, are more likely to suffer from a difficult financial situation at their retirement age. Higher level of education and work experience increase the probability of living a financially more secure life at retirement age. Another factor causing poverty risk is our fellow citizens’ insufficient awareness of the amount of their pension and their excessive hope of receiving additional income, which, according to the survey, is rarely justified. For instance, Estonian residents hope to receive additional income by continuing to work at their retirement age, from their business ventures, and from the sales of their real estate and other assets. In reality, every other Estonian pensioner can only rely on state pension.

The Retirement Readiness Index survey was carried out at the request of SEB in cooperation with the market research company TNS and the Centre for Sustainable Business of the Stockholm School of Economics in Riga. The survey includes four main elements: retirement awareness, trust in the pension system, people’s actual behaviour, and confidence in their future pension.

The Retirement Readiness Index will be calculated annually to follow changes in the Baltic States’ pension systems, determine the actual situation and to supplement the advice we offer to clients with fresh survey data.

A short summary of the survey is available here:
http://www.seb.ee/sites/default/files/web/files/2015.02_seb_pensionivalmiduse_uuring_eng.pdf

The most interesting facts via infographics:
http://www.seb.ee/sites/default/files/web/files/dokumendid/2015.02.16_Infograafika_ENG.pdf

Additional information:
Julia Piilmann
Communication Manager
Marketing and Communication Division
SEB Bank

Phone: +372 665 5340
Mobile: +372 512 4808
Address: Tornimäe 2, 15010 Tallinn, Estonia
E-mail: julia.piilmann@seb.ee
www.seb.ee

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