People should be given a target for their retirement savings, says the Pensions and Lifetime Savings Association's George Currie.
Current trends suggest that younger people are likely to face higher costs in retirement than today’s retirees, with longer life expectancy and increasing care needs adding substantially to their expenditure.
80 per cent of people told us that defined targets would help them achieve a better income in retirement
In addition, younger generations’ struggle to get on the housing ladder means that property is more likely than ever to become a cost to them in retirement as opposed to a potential source of income.
Sadly, research demonstrates that the financial pressures tomorrow’s pensioners are expected to encounter are not well understood among today’s savers. Indeed, the vast majority (77 per cent) do not have any idea what income they will need in retirement.
Of the minority (23 per cent) of people who claim to know how much they will need in later life, only around one in six (16 per cent) can provide an exact income level.
It is for this reason that the PLSA recently proposed the development of a series of new retirement income targets, which would be linked to particular lifestyle levels (‘minimum’, ‘modest’ and ‘comfortable’) and broken down into expenditure by product or service. We want to ensure that people are aware of the sorts of products and services that they will require in later life, and the costs associated with them.
This idea has been well received, with 80 per cent of people telling us that defined targets would help them achieve a better income in retirement.
Other income needs to be included
We do accept, however, that retirement income targets alone will not ensure better incomes in later life. That is why the PLSA has also made a range of proposals in other areas, which are intended to support savers in achieving their desired lifestyle in later life.
The supporting cast of proposals comprises the full range of likely income sources: pensions, property assets and longer working lives. It also takes into account the impact that the savings industry has on people’s retirement outcomes, through a variety of ideas on how the management and decumulation of resources can improve.
All of the proposals, including the new retirement income targets, must be supported by more effective saver engagement throughout the retirement savings journey.
Retirement income targets are not a panacea to the problem of undersaving for long-term needs, but they are an important part of the solution.
Combined with the supporting axis of proposals set out in our Hitting the Target consultation, clear and concise retirement income goals can help savers to plan more effectively for their twilight years. You can send us your thoughts on the proposals set out in our consultation at hittingthetarget@plsa.co.uk.
George Currie is a senior policy adviser at the PLSA
