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UBS Pension Forum – UBS International Pension Gap Index and Retirement Monitor 2017

Zurich Media Releases Switzerland

Private savings are essential to secure an adequate standard of living in retirement. This is the conclusion of the latest UBS International Pension Gap Index, which compares the mandatory pension systems in twelve countries worldwide. Visible trends challenge the future of all pension systems – planning and saving early is the key to success. The Retirement Monitor 2017, which was also published today, shows that the Swiss people's understanding about the pension system's pillar 3a is opaque.

Zurich, 17 October 2017 – For the first time, the UBS International Pension Gap Index analyzes the benefits of the mandatory pension systems in twelve countries worldwide. The study calculates how much a person has to save privately as a percentage of today's net income, to afford an adequate standard of living in retirement.

The analysis was carried out with an "Average Jane" in mind, a fictitious person who is 50 years old and has earned the median wage throughout her career. Until today she has only done the bare minimum to save for her retirement. She lives in a city and leads a simple life and wants to keep it that way in retirement. It is central for Jane to estimate her cost of living in retirement as well as the expected payouts from her mandatory pension system. The difference between the two would be the deficit that Jane needs to finance privately.

Savings vary greatly, but are essential
The results differ greatly among the twelve countries we look at, but Jane has to save privately in each of them to cover her retirement costs. Switzerland has the most comprehensive cover. Assuming Jane invests her savings in a diversified portfolio from age 50 onwards, she needs to save roughly 11% of her current salary to meet her retirement needs. Her pension payout from the first and second pillar will amount to about 50% of her final salary.

Australia and Singapore follow Switzerland, but by some distance. Due to the low retirement age of 62 and the long life expectancy, Jane has to finance the longest retirement in Singapore. Australia has a lean system, but benefits from higher investment returns compared to other countries.

Many European countries have introduced reforms to raise the retirement age to 67 over the coming years. Still, even with a lower life expectancy, the savings requirements in France, Germany, Italy and the UK are almost four times as high as in Switzerland for the 'Average Jane'. In the US and Canada, Jane needs to save more than half her current income. At the bottom of our list are Japan, Hong Kong and Taiwan, where personal responsibility for retirement saving takes on an even more important role.

Three trends challenge pension systems
UBS's International Pension Gap Index indicates three trends that challenge pension systems globally. First is demographic change. Jane's savings requirements are significantly impacted by her life expectancy in each of the countries. Declining fertility rates and rising life expectancies change the structure of societies. A falling number of working people need to support a growing number of retirees. Second, the low interest rate environment makes it hard for pension funds to generate decent returns. Pension funds are often mandated to invest the majority of their capital in safe fixed income instruments. Lastly, public spending on pensions and social security related issues has risen over the years. With public debt inflating, it will be hard to serve the growing needs of the population in general.

Mixed understanding about pillar 3a
The UBS Pension Monitor was carried out for the second time in cooperation with gfs-zürich. The focus of this year's representative survey was the Swiss people's knowledge about the pillar 3a private retirement savings option. Country wide, 1201 people between the age 18-84 participated.

The results show different levels of understanding among the Swiss people about pillar 3a. Just 35% of respondents know that pillar 3a capital does not have to be declared on tax statements. Furthermore, 43% of respondents did not know that more than one 3a account is permissible per person. Regional differences exist: 39% of people in Ticino and 50% in the western part of Switzerland were not aware of this option. The German speaking part of Switzerland seems to be better informed, with 61% of the population aware of the option.

High expectations and growing personal responsibility
The Pension Monitor 2017 shows that expectations are still high when it comes to pension benefits. More than half (53%) expect wrongly that their pension income will be at least 71% of their final salary. Thirty-seven per cent of women and 17% of men even expect a replacement rate of over 90%. Fortunately, the share of 3a savers rose compared to 2016. Fifty-six per cent state that they use the pillar 3a to save for their retirement, compared to 52% in 2016.


The complete reports can be accessed online using the following link: www.ubs.com/vorsorgeforum

UBS Switzerland AG

Contact

Jackie Bauer, Economist & UBS Pension Expert
UBS CIO WM Swiss Macro and Sectors
Tel. +41 44 239 90 61

Daniel Kalt, Chief Economist Switzerland
Head UBS CIO WM Swiss Investment Office
Tel. +41 44 234 25 60

Andreas Schaub
CEO gfs-zürich, Markt- & Sozialforschung
Tel. +41 44 360 40 20

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