The issues of retirement are well documented. When defined contribution pensions completely replace defined benefit schemes as the sole source of pension, we will see people not being able to replicate the retirement income levels those with DB arrangements are currently enjoying.
Longevity, social care costs and a lack of saving culture lead to a dismal outlook for the next generation of retirees.
Technology is far more advanced in other industries and there is much we can learn from them
The Pensions and Lifetime and Savings Association recently published its ‘Hitting the Target’ paper outlining these issues and possible solutions.
Its research suggests that just 3 per cent of savers with DC-only pensions are likely to reach the Pensions Commission’s target replacement rate of £19,162 for a median earner in 2017.
Enable members to take action
It also found that only 23 per cent people know how much they need to save in order to achieve an adequate retirement income. So, what are the solutions to help people get to a place where they have enough income to retire on?
Financial education and modelling tools for members are growing in popularity. However, it is all very well taking a horse to water, but how do you make it drink?
Technology and communications techniques must develop further to actually make people act on what they are learning. Moving from learning that they need a certain amount in retirement to seeing that to have a chance of reaching this they need to make a certain amount of contributions is great.
But what if they could take action and change their contribution rates then and there? The functionality is already there, it is just not linked together, and trustees have been wary of allowing it to happen.
The PLSA is proposing that retirement income targets be incorporated into the pensions dashboard. This would provide a holistic view of how close a member is to achieving their target retirement income, but still does not mean a member will do anything with that knowledge.
Technology is far more advanced in other industries and there is much we can learn from them. We know it can be utilised for guided retirement, but many baulk at this.
Pensions industry is making progress
Providers are stepping in, devising more assistance for members going through the retirement process with specialist teams within their call centres, many of whom are taking the PMI certificate in Pension Scheme Member Guidance. Where guidance is not enough there is a facility to hand over to qualified advisers – but the question of who pays remains an issue.
There are other solutions proposed by the PLSA that warrant further investigation. Pensions are not the sole source of retirement income – equity release products should be made more flexible and easier to access. The ability to keep working is an option and as long as employers are flexible, older employees have a lot to offer.
We agree there needs to be a shift in public policy to create a savings culture and improve understanding, alongside further innovation by product and service providers. But we are getting there.
Lesley Carline is vice-president at the PMI and director at KGC associates
