The Pensions and Lifetime Savings Association has proposed the UK introduces national retirement income targets, known as Rits, to help savers understand what they need to save.
The proposal is part of a wide reaching consultation from the association, Hitting the Target – Delivering Better Retirement Outcomes, which looks at how people can define and meet their retirement goals. It follows research by Populous Data Studies, on behalf of the PLSA, that found 78 per cent of 18 to 64 year olds are not sure, do not know where to look to see if they are on track with their retirement savings.
The survey also found that just 16 per cent know how much they would need to achieve the standard of living they hope for in retirement. Just under half (43 per cent) of those who said they knew how much they need to save said they had come to this conclusion by themselves demonstrating that a more evidence based national model is needed.
Therefore, with the government’s help, the PLSA would like to introduce Rits, to 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. These would be ranked as minimum, modest and comfortable. The system is already used in Australia and has been successful.
The PLSA believes introducing Rits would address one of the key challenges facing savers as there is currently no widely accepted and generally understood target for retirement income and 77 per cent of people admit they do not know how much they need in later life. Four out of five people (80 per cent) said that Rits would help them plan for retirement.
As part of the consultation further in-depth analysis will be undertaken to determine exact income levels and the PLSA welcomes views from interested parties. However, as part of this initial research, consumers were asked for their views and 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).
Commenting, PLSA director of external affairs Graham Vidler said: “We all know we need to save for retirement but few of us know how much we might need to live on or whether we are on track to hit that target. The PLSA will be consulting widely to understand how the industry and Government can help people build and reach a retirement plan.
“As part of this, we are asking difficult questions which need to be answered to help more people make the right choices around retirement. We are also looking to develop a new set of Retirement Income Targets that will empower savers by providing tangible targets for them to achieve. We look forward to working closely with stakeholders to build a retirement savings market which is truly focused on the end users – savers.”
Whatever level targets are set at, savers will need help reaching them. As part of the consultation, the PLSA will be looking at other issues such as how more people can be brought into the scope of auto-enrolment, increasing the minimum level of contributions, whether the current tax relief system should be modified to support savers, and how they can support realistic extensions to working lives.
The association will also examine what 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. In addition, it will look at how to ensure people get what they want when they turn their pension savings into income and the respective roles of defaults and engaged decision-making.
“Savers will need support as they work to achieve the Rits and we need to consider what might need to change within the UK retirement and savings market to facilitate these steps forward. Our report sets out some of the changes we think are necessary but we want everyone with an interest in the nation’s retirement future to respond – challenging, improving and building on our proposals,” Vidler added.