Why PLSA’s retirement living standards offer a target worth saving for
By pairing target retirement lifestyles to an annual income, the 11 million pension savers across defined contribution (DC) plans can now understand what they’ll need to live off when they retire, and how much they’ll need to save in order to achieve that. This is a great step forward in addressing the current savings crisis.
The current savings crisis
There’s absolutely no doubt that the introduction of pensions auto-enrolment contributions have been incredibly successful at getting people to start saving. But it’s also clear that, as a nation, we are still far from being able to say ‘job done’ when it comes to retirement saving. Our analysis of almost one million pension members with DC plans found that three-quarters of savers were currently “off-track” from receiving an adequate income in retirement. This simply isn’t good enough.
Setting a clear goal
The complexity of pensions can be overwhelming – many people find it hard to know how much they’ll need to save to be able to retire, or reduce their working hours, when they’d like. As a result, many savers just switch off completely. Over the past five years, our Guided Outcomes technology platform – or GO as we like to call it – has given employees a tangible savings goal, and guided them towards achieving that over time. People are motivated by this tangible goal in the same way as they are by personal targets set across all aspects of their life, such as saving up to travel the world or to achieve personal fitness goals.
Following similar principles, the retirement income targets announced by the PLSA are a fantastic step forward and will go a long way in addressing the current savings crisis. If the industry embraces these targets it will help many more people to feel more confident that they can retire on an adequate income.
We look forward to continuing our work with the PLSA and the industry to enable the targets to be adopted more broadly. If this can help pensions schemes and providers engage with members, or simply encourage them to save more, then it’s a win:win!
We hope the targets will encourage individuals to save with the certainty and security of a guaranteed retirement lifestyle, creating a better future for everyone.
The author is Michael Ambery, head of DC provider relations at Hymans Robertson.
Hymans Robertson recently held a webinar which focused on the PLSA Retirement Living Standards and the impact targets could have on saving for retirement.
Together with communications agency, like minds, its experts shared their experience of operating targets for DC plans and discussed:
- details of what the PLSA Retirement Living Standards are;
- alternative DC targets and when they might be appropriate;
- what this means for your plan's governance; and
- what opportunities it presents for member engagement.
You can replay the full webinar below.
This article is provided by Hymans Robertson.
In partnership with Hymans Robertson
We're one of the longest established independent consulting and actuarial firms in the UK
