The PLSA has circulated the concept as part of a consultation it has launched with the aim of improving the UK’s retirement prospects.
Based on initial research into how much annual income people said they would need in retirement, the PLSA has suggested three National Retirement Income Targets; Minimum – £10-15,000, Modest – £15-25,000, and Comfortable – more than £25,000.
The PLSA says having targets will help to overcome a major problem in pension saving – people not knowing how much they will need in retirement and so having no idea whether they are saving enough. It said 78% of 18-64-year-olds surveyed did not know where to look or how to tell if they are on track with their retirement savings and 77% said they had no idea whether they were on track or not.
An income benchmark
Income goals would provide a benchmark and help show people how much they need to save to reach their target, with further work to be done in considering different ways that people could be helped to reach the goals.
For example, the PLSA said these could include bringing more people into the scope of the auto-enrolment workplace pension scheme and raising contribution levels, changes to pension tax relief, longer working lives or using homes to fund retirement, as well as better financial education.
Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, said:
“Retirement planning is confusing for most of us and is one of the areas that people frequently speak to their intermediaries about. We believe that a set of Retirement Income Targets could benefit both clients and their advisers as it will provide a nationally recognised standard that people can work to achieve over their working lives.
He added: “The PLSA is particularly keen to engage with intermediaries as part of this consultation as they understand the challenges people face, whether they have just started saving for retirement or about to finish work.”
Success already in Australia
According to the PLSA, retirement income targets are already used successfully in Australia and Viddler said by floating the idea for the UK as part of a nationwide consultation, he wanted “everyone with an interest in the nation’s retirement future to respond – challenging, improving and building on our proposals.”
Tom McPhail, head of policy for investment company Hargreaves Lansdown, said: “The key intervention needed to reset the whole framework for investors, is for the government to champion a clear policy around promoting saving and investing. No one in government, no department and no policy has anything to say about wanting to create a nation of savers and investors.
“We are in a new post-paternalistic paradigm for pensions and savings where the traditional guarantees from pension schemes and insurance companies have been stripped away in exchange for freedom, choice and personal responsibility; the government needs to respond to this and to focus on how we can engage people with their financial needs.
He added: “The PLSA report picks up a number of current themes around retirement saving, including enhanced governance, increased coverage and contribution rates, revising tax relief and more clearly defined retirement pathways. The proposal to target an income based on the concepts of ‘minimum’, ‘modest’ and ‘comfortable’ may well work for investors, we’d see this working most effectively if incorporated into retirement income calculators.”
The PLSA is seeking responses to the consultation and says it will aim to publish a summary of feedback by next summer.
