The conclusions of a recent pension survey make Nordea’s consumer economist react. Norwegians’ pension savings are changing sharply.
Nordea has examined people’s (1287 interviews) savings and investment plans, such as how they save. It is a matter of self-saving for retirement.
– We see that the savings pattern has changed. The survey shows that two out of ten will save exclusively on a savings account, while just over half will save on a savings account combined with other savings, Nordea’s consumer economist Derya Incedursun answers. And here are the dramatic changes.
Big changes
A survey conducted by Nordea in 2018 showed that as many as 72 per cent saved in a savings account. In this year’s survey, 38 per cent answer that they want to save in equity funds. This indicates a sharp change in savings behavior, as only one in seven had in 2020 invested most of their savings capital in equity funds.
When Nordea asks what is most important to you when you save in funds, “return” is clearly the most important purpose. Nearly six out of ten answer that. Just over two out of ten state “low risk”. In the survey from 2020, 32 per cent returned a return and 48 per cent a low risk, respectively.
One thing in particular surprises Incedursun with the new survey.
– The proportion of young people under 30 who save for retirement has increased from 2 percent in 2020 to 35 percent in 2021. This surprises me greatly, that so many under 30 take responsibility for their own pension savings, says Incedursun to Nettavisen Økonomi.
She says an uncertain future is a good reason to prioritize pension savings at a young age. Setting aside money at the beginning of your career is a smart way to prepare for the future.
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Repayment
– But before you start saving for retirement, you may want to prioritize more immediate needs. as repayment of expensive debts and to set aside money in the buffer account. You should also save for housing if you have a desire to enter the housing market.
– When this is in place, most people should start saving for retirement, regardless of age, says Incedursun.
In this year’s pension survey from Nordea, four out of ten answer that they save for their own pension, compared to only two out of ten in last year’s survey. In the age groups 30-44 and 45-59, the pension savings have more than doubled this year compared with the previous year.
Incedursun says that no reasons have been given for this sharp increase in pension savings.
Over 30,000 kroner
– But eight out of ten state a specific amount that they will save in 2021. Over 40 percent answer more than 30,000 kroner. Men will save a higher amount than women, and younger more than older. I think the reason may be a combination of increased attention to savings and pensions and coronary restrictions, says the consumer economist.
Incedursun believes that more people are informed that we will receive significantly less of what we previously had in salary per month as a pensioner. Then we are talking about the sum of the pension we receive from the National Insurance Scheme with the pension we receive from the employer.
– We realize that it is important to secure ourselves financially and save in addition to these schemes. There have also been many changes in the pension system in recent years, it has become more individualized and flexible. You must take more responsibility for your pension savings.
Incedursun also points out that there have been limited social gatherings due to the pandemic. Much has been canceled and closed, which means that more people have actually saved and are saving their daily consumption.
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Women want more
– Men are clearly more concerned with returns than women, and they were also in the survey from 2020. But the proportion of women who are concerned about returns has risen from 25 per cent to 45 per cent. In other words, returns have also become more important among women, says Incedursun.
– What is the biggest mistake most people make with their retirement savings?
– It is to place the money in a savings account. Many people still save in a savings account for long-term goals without thinking about the possibility of other options. The interest rate on a savings account is currently very low, and as prices rise at the same time, the money will lose value overtime.
– It’s okay to have some of the savings in a bank account, but you can not expect a good return, the consumer economist answers. And we can quantify that very concretely.
Big difference
Let’s say you save 1000 kroner a month for 30 years. With a savings account that gives 1 percent interest, after 30 years you will be left with NOK 419,676 before tax, NOK 405,547 after tax. It is in today’s money values.
– But adjusted for an expected inflation of 2 percent, this falls to 232,000 kroner before tax, 224,000 kroner after tax, warns Incedursun.
If, on the other hand, you have a savings portfolio with 50 per cent shares with a total expected return of 5 per cent, you will have NOK 818,698 before tax left in 30 years. After the price increase of 2 per cent, the amount is NOK 452,000, twice as much as the pure bank savings.
– And if you have a savings portfolio with only shares that gives a 7 percent annual return, you will be left with almost 1.2 million kroner before tax, 649,000 kroner if we deduct the price increase, says Incedursun.
Also read: These are the biggest myths about retirement
Not good
– Deposit rates have never been as low as they are now. With an annual price increase of 2-2.5 percent, it is not good for you who save long-term on account. As long as the interest rates on the account are lower than the general inflation in society, it will mean a loss to save on the account, warns Incedursun.
So you get less for your money and negative purchasing power. But the purpose of saving should be to be able to maintain your purchasing power in the future.
Then the return on savings over time must be higher than inflation after tax. It is not possible to achieve by placing the money only in the fixed income market. Incedursun, however, sees signs of changing attitudes.
– More people opt out of savings accounts compared to previous surveys, and that is good. I think more people have now become aware that there are other forms of savings that provide better opportunities for good returns.
– The pension savings can with advantage be put in equity funds where you get the opportunity for a good return. Historically, equities have given an excess return of 3-5 percentage points compared to the best savings accounts, the consumer economist points out. And the extra percentages thus make an enormous impact over time.
Fine balance
– What should be crucial for how you save?
– It all depends on what return you want, how long a time horizon you have and what risk you want to take. Those who do not want high risk can choose a fund where they get a nice balance between interest rates and equities.
– Do you think the increased pension savings is a transient phenomenon when the corona pandemic is over?
– When the worries about one’s own finances and job become less, people get the opportunity to spend money again and interest rates go up, I think that the increased savings can decrease somewhat.
– Those with high debt in relation to income will receive poorer advice in the event of a rise in interest rates. Thus, they also need to reduce savings, Incedursun answers.
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