Recreation and retirement do not go hand in hand, say experts

Earlier this month, the Pensions and Lifetime Savings Association published its 'Hitting the Target' consultation, which looks at ways to deliver better retirement outcomes, and suggests the introduction of Australian-style national retirement income targets.

The idea that somehow you deserve this sort of period of extended recreation for 30 years and that it’s financially sustainable has to be challenged

Martin Fahy, Association of Superannuation Funds of Australia

The PLSA said that adopting RITs would allow a saver to select their preferred RIT level. It would also be adjustable according to age, the number of people in a household and the cost of living.

Embrace RITs

Speaking at the PLSA, Martin Fahy, chief executive of the Association of Superannuation Funds of Australia, encouraged the UK “to embrace the idea of a target”.

The PLSA’s consultation, which closes in January, highlighted how, for those people who have not saved enough into a pension or do not have property to fall back on, working into later life could allow them to reach their retirement income goals.

Fahy said: “If you don’t have a house over your head, it almost doubles the amount that you require.”

Change assumptions of a recreational retirement

Aside from not saving enough, it is also possible that people have unrealistic expectations about life in retirement.

"People want to experience retirement as an emotional construct, not as a rational construct,” said Fahy, who highlighted “the association of retirement with recreation” as the biggest problem.

“The idea that somehow you deserve this sort of period of extended recreation for 30 years and [that] it’s financially sustainable… has to be challenged,” he said.

Fahy added that the Australian system is “not great in post-retirement” and is “even more attached to the family home”.

Chair of the PLSA steering group Richard Butcher agreed with Fahy that the association of retirement with recreation was financially unsustainable and needed changing.

He said: “We need to re-engineer the system.”

Butcher noted that the PLSA consultation's goal was to get people to a minimum level of retirement income.

“If we can ensure people get to that minimum level, so that they’ve at least got a basic… standard of living, then we can build on that,” he added.

Working for longer 'is no sticking plaster'

Tim Sharp, policy officer at the Trades Union Congress, agreed the RITs are a potentially useful tool because they look at the lifestyle that people might enjoy and the goods that they might purchase.

He raised concerns “about the sort of looming problem of people getting to retirement and not... being able to continue anything like the lifestyle that they used to have” if nothing is done on this issue.

However, he dismissed the notion that longer working lives are “some kind of sticking plaster” solution for people who have failed to save enough into a pension.

Get the basics right on VfM

While getting people to save enough is key, the way in which their money is invested is also important.

Patrick Heath-Lay, chief executive of mastertrust the People’s Pension, noted that value for money is a frequently debated topic among the industry, and welcomed the regulatory work that is being done on trying to improve transparency in the investment management industry.

However, “I don’t think we’ve got some of the basics right”, he said.

He said if the industry brings visibility to the cost within the system, it also needed to make it comparable in order to drive value. “Simply disclosing the information does not make it understandable,” he said.

Heath-Lay said bringing transparency to the investment management industry was also helpful for providers.

“We’ve been quite lax as an industry in accepting that investment management does certain things for returns without looking under the bonnet,” he explained.