Talking Head: Redington's Rob Gardner questions how we can calibrate investment strategies and saving behaviours with retirement income goals.
As we live longer, pension funds are failing to match liabilities, compounded by a decade of poor investment performance.
For my parents, it was simple: go to university, get a job, work hard for 40 years and retire with a defined benefit pension.
However, the idea of perpetual income for life is near expiry. DB pension funds will soon become relics of the past.
In the UK, reforms have passed the burden of responsibility onto the shoulders of individual savers via defined contribution.
However, the good news is recent pension reform now means we have choice. But there is still a major challenge.
With UK savings rates currently less than 6 per cent, few of us will have the confidence to say our savings will outlive us.
With UK savings rates currently less than 6 per cent, few of us will have the confidence to say our savings will outlive us
So, what can we do to make ourselves financially secure in retirement?
We need a clear roadmap to a future where we can all live on a comfortable retirement income.
But how do we get more people to save more?
Einstein once called compound interest the eighth wonder of the world. We need to capture the imaginations of our young people with the power of long-term saving.
We also need to talk more openly about financial planning and break the taboos of money, death and old age.
Transforming our financial future requires an easy, attractive, social, and timely savings system. Automatically providing a default solution for those undecided can help address this.
Technology is key
We can also build new social norms around investing, by publicly committing to saving.
Technology is paramount to this. It has the ability to assist people in organising lifestyles and increasing the likelihood of meeting realistic goals.
We must enable everybody to access pension savings online, with easy-to-use hubs to monitor and manage all savings.
Income in retirement must be at the heart of investment strategy design.
Investment goals can be calibrated with three key questions: How much in retirement? When? How much will you save?
We must align investment strategy design to these outcomes.
If not faced now, this grand challenge will become even greater for our grandchildren. We must all collectively and creatively address this problem.
"A society grows great when old men plant trees whose shade they know they shall never sit in.” – Greek proverb.
Rob Gardner is co-CEO of Redington
