PLSA AC 18: Retirement income targets do come with risk of putting people off saving

The Pensions and Lifetime Savings Association’s proposed retirement income targets do risk putting some people off saving for a pension by potentially showing how unattainable their desired retirement lifestyle is, PLSA policy board chair Emma Douglas has admitted, but she would rather take that risk in order to benefit others.

Speaking at the association’s annual conference today, 17 October, in Liverpool, Douglas said that she would “rather take that risk and inform people”, so they have a “slightly better idea of what they are going to get in retirement”.

“This isn’t really changing what they are going to get, it is just setting some standards out…that this is the reality. I always feel that that information, although can be quite depressing at the time, it is better that you know it earlier on than having it as a horrible surprise at retirement, when there is nothing you can do about it,” she explained.

The PLSA has proposed three retirement income targets to suit different people, and Douglas said the basic level will not be much higher than the state pension.

“I would hope that we wouldn’t set this as a completely unattainable level for those who are on lower incomes, because the idea is that these should work across the board, so it’s not just the well off, it’s for everybody,” she said.

Backing up the popularity of the dashboard, she said result from a survey found that 74 per cent think retirement planning would be easier if they had retirement income targets.

She said the PLSA is progressing with creating the targets and is working with Loughborough University and plan to have the targets ready to go in the early part of next year. However, she said they would need to be adopted by the single financial guidance body (SFGB) and integrated into the pension dashboard.

“Really the targets are only going to be a useful measure if as much of the industry as possible uses them,” she said.

Alongside Douglas’ speech were a series of vox pops with members of the public, who were asked about the type of retirement they would like, how much they think they will need, whether they think their employer does enough to help them understand pensions, and what help they would like in making decisions about their pension.

The majority wanted to live comfortably in retirement without having to work, and expect to live off a combination of the state pension, personal pension, savings and inheritance. Most wanted more help from their employers and feel like they want more help from the industry.

They were also asked whether they would pay for advice, with the answers split but those that would get advice said it depended on cost. In particular, Douglas said there was a “gap between expectation and reality” on the price of advice, with one respondent stating £25 as what the cost of advice might be, when it can actually be around £500.

On the subject of auto-enrolment contributions, Douglas spoke about the need to get contributions up to 12 per cent, with an equal split between employers and employees. However, she admitted that such a move “will have an impact on wages”.

"Whoever is paying for it, it is going to be painful, on one side or the other. We felt that the 50:50 split was more achievable because if we just keep asking members to paying more money in, they will probably hit the point where they are just going to opt out. Whereas if they can see that their employer is matching, there is more incentive to stay in.

"Clearly there is a cost for the employer on that, and it will have an impact on wages...we don't think it's like a silver bullet that employers can suddenly find the money, which is why we're trying to phase it in over a reasonably long period."

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