George Currie, Policy Lead: DC & Lifetime Savings, surveys the rapid progress of one of the PLSA’s most successful initiatives.
It’s been a big year for the PLSA’s Retirement Living Standards. From a standing start in 2019, they’ve really hit their stride in 2020.
What are the Retirement Living Standards?
The PLSA’s Retirement Living Standards were one of the flagship recommendations in our Hitting The Target report (2018), which found that only 23% of people knew what they were aiming for as a retirement income. To ensure the Standards were robust, we commissioned independent researchers at the Centre for Research in Social Policy (CRSP) – part of Loughborough University – to build them. The CRSP has a distinguished track record of building such standards, having been behind the widely respected Minimum Income Standard used by the Joseph Rowntree Foundation.
Our Retirement Living Standards seek to help people picture their future by illustrating the cost of living three defined lifestyles: ‘minimum’, ‘moderate’, and ‘comfortable’. Each of these levels is based on a basket of goods and services, the total cost of which is reflected in the headline Standard levels. The Standards are a simple, tangible, intelligible starting point to help individuals understand what lifestyle they would like in later life.
How have the Standards been rolled out?
We knew when we launched the Standards that there was a demand among schemes for more effective ways to engage the savers they serve. All our research suggested the Standards would hit the mark in this regard. Since launch, we have seen a huge appetite from pension schemes and other organisations across the industry to use the Standards within their member, client, or broader stakeholder communications.
Just over a year after their launch in October 2019, more than 50 organisations across the industry have adopted them and over 14 million savers now have access to them. This is a real success story for savers, and we’re working hard to continue the adoption journey so that more savers can picture their future.
What about concrete examples of Standards adoption?
The scale of adoption is unrivalled by any recent pensions industry initiative, short of regulatory requirements. Firms from all sides of the industry – big and small, established and challenger, multinational and start-up – have adopted the Standards.
Aviva, to take one example, has embedded the Standards into its full customer journey to provide savers with multiple touch points throughout their lifetime. The Standards feature in its latest member guide, in employee financial education sessions, and will soon (2020/21) appear on annual benefits statements. Aviva also plans to enable customers to create their own personalised target informed by the Standards. This innovative customer engagement is supported by effective client reporting. Aviva is in the process of incorporating the Standards into its Shaping Futures governance reporting functionality, so that employers can see the proportion of a member’s projected retirement income relative to the Standards and what impact increasing contributions could achieve.
EValue, to take a second example, provides calculations and modelling software to help people better understand how the actions they take now can change their future. To provide a more tangible consumer experience, EValue has upgraded its calculator and budgeting tool suite to include the Retirement Living Standards. Its Retirement Lifestyle Forecaster allows users to input their age, chosen retirement age, pension balance and monthly contributions to discover how long they could expect their retirement income to last – with the Retirement Living Standards as benchmarks. The tool also suggests ways the saver could improve their situation, namely by increasing their contributions, delaying their retirement, or using other sources of income.
So, is the PLSA’s work done here?
Certainly not. It has been great to see the Standards come to life in different ways across the industry. The work that has taken place has not gone unnoticed elsewhere. During 2020, the Retirement Living Standards received two industry awards – the Headline Money Thought Leadership Initiative of the Year and Pension and Investment Providers Innovation of the Year awards.
So what can we look forward to next year?
The last year has been a great success, but there is still work to be done. We want the Standards to reach 90% of active savers via scheme adopters by 2025.
We’re planning further independent research to keep the Standards fresh and relevant to an ever-changing world, including considering the longer-term implications of Covid-19 on the baskets of goods, and updating the figures. We’ll also be looking at other rules of thumb the Standards can be the basis for.
To provide maximum benefit to savers, it’s crucial the Standards are embedded in pensions dashboards when they appear, as well as in the Simpler Annual Benefit Statement. Having the Standards available as part of those key communications will mean all savers can benefit from a greater understanding of what those ‘savings’ figures might mean for their retirement lifestyle. Wherever they are used, we believe the Standards play an important role in helping people to picture and understand what sort of lifestyle their current pension savings are likely to deliver.
To find out more about the Retirement Living Standards, visit www.retirementlivingstandards.org.uk.