The Pensions and Lifetime Savings Association (PLSA) has launched a consultation on introducing a set of new national retirement income targets (RITs) to make it simpler for people to understand how much they need to save to support themselves when not working, and on changes to the current retirement saving system to encourage greater take-up
PLSA says its research shows only 16% of people aged 18 to 64 say they know much they would need to achieve the standard of living they hope for in retirement, while 78% are unsure if they are on track with their plans. Consequently, following the end to the default retirement age, more people are working longer to achieve the level of income they desire.
Retirement income targetss are currently in use in Australia and provide savers with tangible income goals which take into account what they need to save in order to achieve different standards of living in retirement (‘minimum’, ‘modest’ and ‘comfortable’).
PLSA says this will address one of the key challenges facing savers as there is currently no widely accepted and generally understood target for retirement income and more than three quarters (77%) of people admit that they do not know how much they need in later life.
As part of the consultation further in-depth analysis will be undertaken to determine exact income levels. In the initial research, those between 55 and 64 years old suggested that for a single person they might be minimum (£10,000 to less than £15,000), modest (£15,000 - £25,000) and comfortable (more than £25,000).
The consultation will also look at how to bring more people into the scope of automatic enrolment and encourage them to increase their contributions; whether the current system of tax relief should be modified to support savers in achieving the new retirement income targets; how to support pensioners in turning savings into income; and ways to improve engagement.
It will also consider whether more can be done to help people turn their property wealth into retirement income, and whether pension schemes can play a role in helping unlock the supply of housing which people need.
Graham Vidler, PLSA director of external affairs, said: ‘The PLSA will be consulting widely to understand how the industry and government can help people build and reach a retirement plan.
‘We are also looking to develop a new set of RITs that will empower savers by providing tangible targets for them to achieve and help them determine the answer to question - can I afford to stop working.
‘Savers will need support as they work to achieve the retirement income targets and we need to consider what might need to change within the UK retirement and savings market to facilitate this step forward.’
Commenting on the PLSA’s consultation, Rob Yuille, head of retirement policy at the Association of British Insurers (ABI), said: ‘Automatic enrolment has been extremely successful in pulling people into the pension system, but people do need to make decisions about the kind of retirement lifestyle they want and begin to make longer term plans on how to achieve that.
‘A clear and consistent set of targets would help people plan for retirement and we welcome the PLSA’s decision to consult widely on this issue.’
PLSA’s consultation closes on 12 January 2018 and it will be publishing the findings early in 2018.
Hitting the target: delivering better retirement outcomes is here.
Report by Pat Sweet