This week the PLSA will publish its final recommendations on how we can achieve retirement income adequacy. Ahead of this Nigel Peaple, Director of Policy and Research at the PLSA discusses some of our proposals.
Recent governments have taken important strides in improving the retirement income prospects for generations of retirees and, crucially, participation in workplace pension schemes has grown to an all-time high thanks to automatic enrolment. However, younger generations face a number of other financial challenges which have not yet been addressed.
Current trends suggest that, with longer life expectancies and increasing care needs, younger people are likely to face much higher costs in retirement. At the same time the struggle to buy property means millennials are likely to be paying mortgages off well into retirement.
In order to begin addressing this issue, last October, the PLSA launched a consultation called ‘Hitting the Target’ to give a comprehensive view of how effective policy has been at getting people to save enough to retirement. Sadly, our research demonstrated that today’s savers have low levels of understanding about their financial future with the vast majority (77%) of people saying they don’t have any idea what income they’ll need in retirement. Of the 23% who claim to know how much they will need in later life, only around one in six (16%) can provide an exact income level.
To combat this, our consultation proposed the development of a series of retirement income targets, which would be linked to different lifestyles with varying levels of comfort.
This idea has been well received, with 80% of people telling us that targets would help them achieve a better income in retirement. We do accept however, that retirement income targets alone will not fix the issue of people not saving enough for retirement. Over the past nine months we have been consulting on the detail behind the targets as well as a range of proposals in other areas that would help support savers to achieve the retirement they want.
We have been consulting on issues such as automatic enrolment, improved scheme governance and value for money, guided decision-making “at retirement”, and helping people engage more effectively with retirement saving in the round. We have also been considering the role that income from housing assets and working in later life can play in improving retirement income.
We have had feedback from over 100 stakeholders as part of this consultation and this week, we’ll publish our final recommendations. While we recognise that retirement income targets are not a silver bullet to fix the problem of under-saving for retirement, we believe they are a crucial part of the solution.
Find out more about the Hitting the Target project here