Just one in two feels financially prepared for retirement

December 10, 2018
  • Confidence in investment market outlook helped by November’s stock market rebound
  • Saving sentiment stable but attitudes towards saving hit an eight month low
  • Retirement Optimism fades, one in two (49%) feel financially unprepared for retirement

The Bank of Ireland/ESRI Savings and Investment Index, which measures sentiment towards saving and investment, rose from 99 to 100 in November 2018. The slight gain in the headline index was driven by an improvement in investment sentiment as confidence in the market outlook recovered from the battering it received during ‘Red October’.

In a more dramatic drop, Irish confidence levels around retirement waned in November as the Retirement Optimism Index fell from 105 in September to 99 in November. The key factor driving the index lower was a big drop in perceptions about how financially prepared people felt for retirement. Almost one in two people (49%) said they felt financially unprepared for retirement, the highest reading since the question was first asked in September 2017.

Commenting on the November results for the Bank of Ireland/ESRI Savings and Investment Index, Tom McCabe, Bank of Ireland Investment Markets said “The Savings and Investment Index stabilised in November thanks to a reasonable pick up in investment sentiment following October’s battering. A better stock market performance clearly helped and it was also heartening to see investment attitudes remaining resilient in the face of continued market volatility. In the short term, market conditions and the geopolitical outlook are very likely to remain the key factors shaping Irish investor sentiment.   

“The drop in confidence around retirement provision is significant and just half of respondents feel financially prepared for retirement. With people living longer adequate pension provision is more challenging than ever, and some concern clearly emerged in November.”

Investments Index

The Investment Index rose from 99 to 100 with the rise exclusively down to a recovery in investors’ confidence following sharp market falls in October. The Investment Environment sub index rose from 96 to 99 in November, helped by a better market backdrop. Although stock markets were again volatile in November, they at least eked out a gain of 1.5% and helped to stem recent losses for Irish investors. 32% of people felt it was a good time to invest in November, down slightly from the 33% reading in October. However the numbers that felt it was a bad time to invest dropped from 26% back to 22%.

Attitudes towards investment were unchanged in November. The percentage of regular investors surprisingly rose to a nine month high of 34% in the month given the continued market volatility. The tax deadline for income tax relief on pension investments could have boosted peoples’ eagerness to invest. However this improvement was offset by less confidence around the amounts people were investing each month, causing the overall Investment Attitudes sub index to be unchanged at 102.

Savings Index

The monthly Savings Index was unchanged at 100 in November with deteriorating attitudes towards saving offset by a brighter outlook for the saving environment. The Saving Attitudes sub index fell from 102 to 99 in November as regular saving patterns dipped again (47% of people were regularly saving) and people felt less satisfied with the amounts they were saving.

Tom McCabe commented: “The softening in saving sentiment over the past year is puzzling, particularly with the economy, employment and wages all growing healthily. A deeper look at the data shows that saving intentions among certain groups have weakened over the period. However the €2.5 Billion growth in household deposits over the past year still clearly demonstrates that at an economy wide level, people remain very much in saving mode.”

Over the past year weaker attitudes toward saving have softened saving sentiment. At an economy wide level this isn’t translating into weaker savings volumes though – amounts on deposit held by Irish households rose by €2.5 Billion in the year to the end of September bringing the total to €103 Billion. However, looking at regional and demographic patterns it is noticeable that saving attitudes have deteriorated for certain groups; younger savers, those in professional occupations and those in Dublin. So it is possible that some groups that are benefiting most from the economic recovery are reassessing their broader financial plans.

The Savings Environment sub index climbed from 98 to 101 in November as the percentage of people that felt it was a good time to save rose to 43%, the highest since January. A significant divergence of opinion on the environment for saving remains between younger and older savers though. Older savers remain more downbeat about the savings environment with continued low returns the likely cause.