How much is enough?
James Walsh updates us on the PLSA’s Hitting the Target programme
‘How much should I be saving for retirement?’ is a pretty basic question, but it’s one that we haven’t been very good at answering.
By ‘we’, I mean all of us in the pensions industry – pension schemes, regulators, government and advisers, even trade associations like the PLSA. If people don’t know how much to save, the risk of them saving too little (or, in rather fewer cases, too much) is inevitably higher as a result.
Tackling this challenge is what the PLSA’s ‘Hitting the Target’ programme is all about. By proposing ‘national retirement income targets’ we hope to show people what kind of income they will need for the lifestyle they want in retirement. Once people are clear on that, it will be much easier for schemes and providers to help them understand how much they should be saving now.
Combine targets with the pensions dashboard, which we expect to play a hugely important role in the future, and we will suddenly have a much better way of talking to people about their retirement saving.
Targets are not a new idea. Our colleagues at the Association of Superannuation Funds of Australia have been publishing the original model – the ‘ASFA Retirement Standards’ – every year since 2004. Almost every ‘Super’ fund Down Under uses them.
Our initial proposal for a UK version, which we put out for consultation last October, envisaged three ‘target’ levels of income (‘minimum’, ‘modest’ and ‘comfortable’). Like our colleagues in Australia, we proposed illustrating these with the kind of lifestyle they would support, expressed in terms of car ownership, home maintenance, holidays and perhaps even liquid refreshment (our Australian friends are told they can look forward to decent ‘bottled wine’ on the highest income level but ‘home-brew beer or no alcohol at all’ on the lowest).
Our Hitting the Target paper also set out further ideas for improving retirement outcomes, such as extending auto-enrolment, making equity release more flexible and transforming the way our industry engages with savers.
Since October we have been testing all these ideas in an intensive programme of consultation. We held eight roundtable meetings on specific issues with a total of 45 industry experts. We ran roadshow meetings with PLSA members in Edinburgh and London. We received 16 written responses from organisations ranging from the Pensions Advisory Service to master trusts to the TUC. Now we are busy making sense of what all that input tells us.
Most – although not quite all – respondents supported our central proposal of retirement income targets, albeit with plenty of thought-provoking questions and caveats. To pick just a few themes:
- Most respondents wanted to keep the targets simple. The consensus was firmly against regional variants.
- It should be easy for savers to personalise the targets to suit their own circumstances. We think providers will produce online tools and calculators to help people do this, but the targets will provide the starting point.
- The targets should be kept independent of government, to avoid any manipulation for political purposes.
- Respondents wanted us to rethink the ‘minimum’, ‘modest’, and ‘comfortable’ labels. They should be more ‘aspirational’ so people do not settle for hitting one of the lower levels.
My PLSA colleagues and I will summarise all this input and where it leaves our policy thinking in a paper in June, including how we should take forward the targets idea.
We hope the PLSA’s Hitting the Target programme will take us much closer to answering that crucial ‘How much should I be saving?’ question. It should be a major step towards helping people enjoy the retirement they want.
Read more about the Hitting the Target project and download the consultation here.