Targeting better retirement incomes
01 March 2018
The PLSA’s Director of External Affairs - Graham Vidler - considers how targets might help people make sense of their retirement savings.
Anyone eaten 400 grams of fresh fruit and veg today? Anyone eaten 800 grams? No, I’m not sure I have either. Whether or not I’ve hit one of the targets recommended by nutritionists for reducing my risk of premature death will always be a mystery to me. But I do have a pretty good idea of whether I’ve managed five-a-day.
And these sort of simple, realistic and, let’s be honest, approximate targets might have a role to play in helping people make sense of their pension savings too. Our research shows that 77% of savers have no idea how much money they will need in retirement and, of those who claim to, only 16% were are able to come up with a figure. A series of high-level, easy to understand targets could help to improve these figures. That’s the view we expressed in our recent consultation, Hitting the Target, and it’s a view we’ve been testing with our members and stakeholders over the last couple of months. After all, these sort of targets will only be useful if there’s consensus about how to build and communicate them.
So, what have we heard during our consultation which closed in mid-January?
We received input from more than 100 stakeholders, from over 50 organisations from across the pensions and lifetime savings industry and beyond. The first and most important piece of feedback that we received was a clear endorsement of the targets approach. Goal setting has been shown to increase contribution rates amongst savers and the creation of a series of simple targets, rolled out at the national level, has the potential to transform the retirement savings landscape.
It’s clear that just about everyone has ideas for improving the targets, but stakeholders also told us that it’s vital that they are kept as simple as possible. The consensus suggests that a set of three targets seems to be about the right number, perhaps with options for people to tailor them to their individual needs. We’ve heard that, however complex the calculations under the bonnet may be, the communication of the targets to savers needs to be crystal clear. One way to ensure this would be to use a small number of key choices to illustrate the lifestyles that people may be able to target. Stakeholders also told us that targets need to be deployed in the places where people can actually use them: in particular, many of you thought that integrating them into the Pensions Dashboard is a no-brainer.
Targets are not a new concept and are currently in use in Australia. I was delighted to be invited to attend our sister organisation, ASFA’s, annual conference and to talk to the team that designed and implemented the income standards, which are in wide use across the superannuation industry. I learnt a lot about some of the pitfalls of designing targets, the need to keep pace with changing trends in society (the day in which the majority of Australian retirees don’t own their own home outright isn’t too far away), and about the importance of buy-in from Government, regulators and funds.
The thing which stays with me from that Conference though is a comment from Dan Ariely, behavioural economist and author of Predictably Irrational, in his keynote speech. He said it was ‘irresponsible’ for the pensions industry to ask people questions it knew they couldn’t answer, like what percentage of your final salary do you want to have on an annual basis in retirement. We need to shift to asking people questions that they are able answer, questions about lifestyle.
I agree with Dan’s provocation and I think most, if not all, of the people who’ve taken part in our consultation also agree we can do better. Do you? While the consultation has closed, we are still keen to hear your views on targets and how you can help make them the norm in the UK. Give us your views at [email protected].