Saving targets must be introduced to boost engagement, PLSA says

The Pensions and Lifetime Savings Association (PLSA) has said that saving targets must be introduced in order to get people saving more into their pensions.

In a report called Hitting the Target: A Vision for Retirement Income Adequacy published today, 5 June, the PLSA called for the implementation of a new regulatory framework where schemes and providers signpost savers to appropriate product options at retirement.

These options would be selected by trustees and governance committees and would adhere to government standards. It says that these standards will help provide a sustainable income and provide flexibility for capital withdrawals.

The association has commissioned independent researchers to develop three different retirement income level targets for savers (‘minimum’, ‘modest’ and ‘comfortable’) and claimed that these will help foster engagement. It points to how these have worked successfully in Australia.

The PLSA also said that minimum contribution levels need to increase to 12 per cent of salary between 2025 and 2030, accompanied by a rebalancing of the contribution split, which would see employers and employees paying 6 per cent each.

Other recommendations aimed at improving retirement incomes include; increasing support at retirement; making it easier to use other income sources; and improving how pension schemes are run.

Looking at other income sources, the PLSA has argued that providers should explore how equity release products can be made more flexible in order to allow savers to supplement their retirement income by borrowing against their home.

To facilitate this, it says that lenders should be able to offer retirement interest-only mortgage products. It believes that it should also be easier for savers to supplement their retirement by continuing to working in later life.

The report says that The Single Financial Guidance Body’s guidance sessions should cover property assets and how part-time work can supplement a retirement income.

The report also suggests that The Pensions Regulator (TPR) could do more to encourage high standards of governance in all pension schemes by publishing pension schemes’ annual chair statements on its website and granting new powers for governance committees to safeguard members’ interests.

The recommendations come after a survey conducted by the PLSA found that 80 per cent of workers are not confident that they are saving enough for retirement, equating to about 30.4 million working age people. Worryingly, it also found that 51 per cent of savers think the auto-enrolment minimum pension contribution level is the government’s recommended amount.

According to the PLSA, almost three quarters of scheme members think retirement planning would be much easier if the UK had retirement income targets and seven in ten say targets would encourage them to save more.

Nigel Peaple, director of policy and research at the PLSA, said that millions of savers are confused about whether they are on track for the lifestyle they desire in retirement.

“We believe that a simple and widely promoted system of retirement income targets would make it much easier for savers to know whether they are saving the right amount,” he said.

“However, targets alone will not be enough. Today we are setting out our vision for a retirement savings system that helps everyone achieve a better income in retirement. We are proposing a range of measures and would like the Government, pensions sector and regulators to work together to take these forward.”

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