Today’s post looks at three recent publications on the topic of retirement goals.
The three reports that we’ll be looking at are:
- The Pension and Lifetime Savings Association’s (PSLA’s) Retirement Living Standards (RLS),
- Savings Goals for Retirement from the Institute and Faculty of Actuaries (the IFA, unfortunately), and
- Interactive Investor’s Great British Retirement Survey, which ii’s Moira O’Neill wrote about in the FT.
Retirement Living Standards
The RLS has three levels of target annual income – minimum, moderate and comfortable – for single people and for couples.
- The closest round numbers are 10k-20k-30k for individuals and 15k-30k-45k for couples
The base numbers don’t take into account the extra expenses of living in/near to London, so some readers might find them a bit tight.
- There are higher targets for London (20k-33k-49k for a couple) within the detail of the site.
Nor do they include tax on pensions, or rent/mortgage repayments.
The idea is to get people to think about the future, though my experience is that pointing out the difficulty of the task ahead can backfire.
Despite the audience being full of money bloggers, they were very resistant to the idea that they needed to save hard for the future.
- Most people live in the present.
The PSLA draws a parallel with the 5-a-day healthy eating initiative, but I wonder whether that scheme has been truly successful, despite its fairly modest ambitions.
- These standards are pretty modest, too – the new state pension plus workplace autoenrollment should make the minimum level achievable for most.
Of course, you would also need to buy a home somewhere along the way.
The website also has some hypothetical case studies to help people track their progress towards their target retirement lifestyle.
Savings goals for retirement
On the back of the work by the PLSA, the IFA has put some numbers to these targets.
- The moderate target requires savings of £800 per month, even outside London.
That’s a quarter of the average full-time salary over their working life.
- A comfortable lifestyle in London needs savings of more than £2K per month – half or the average full-time salary.
These are big numbers, and it means that a lot of the population won’t be on track to meet their goals.
The IFA assumed that people save into their pensions throughout their working lives at a constant rate (adjusted by inflation), which is a bit of a simplification.
- Their numbers for average wages also seem high.
They use a retirement pot of £473K, and a modest 1.75% pa real return (to allow for an element of lifestyling using annuities – they are actuaries, after all).
- This allows for charges of 0.75% pa, the maximum allowed in AE pensions.
II Retirement Survey
interactive investor’s Great British Retirement Survey, looks at the attitudes and experiences of 10,000 people approaching or in retirement.
- The press release from II foregrounded the lack of trust within couples, gender differences, the general pessimism about the future and a (related) lack of planning.
Lots of people plan to work in retirement, and although a fair proportion (35%) want to leave ain inheritance, most people have no will or PoA in place.
- Despite this mess, only a minority (32%) regret not saving more.
Not surprisingly, the survey found a strong link between holding a DB pension and greater peace of mind.
In the FT, Moira O’Neill used the survey as a springboard towards her own calculations on how much people might need to save.
For some reason, she left our the state pension, which makes her pots larger than the ones I would calculate.
- On the other hand, she also ignores housing costs.
For a comfortable couple in London, I think you need a pot of around £1.5M to generate enough income to top up your two state pensions, plus another £1M for somewhere to live.
- So that’s £2.5M in total, whereas Moira never gets above £1.1M.
There’s a lot of well-meaning activity here, but I’m not convinced it will change anything.
- Most people are under-informed about retirement targets, but education won’t lead to an instant change in behaviour.
People are hard-wired to favour today over tomorrow, never mind 30 years after tomorrow.
- Getting past that requires compulsion.
We need to get the auto-enrolment contribution levels up above 15% pa (the PSLA has asked for 12% pa).
- And we need to remove the option not to take part.
Until next time.
Article credit to: https://the7circles.uk/retirement-goals/