The Pensions Policy Institute is on a mission and it needs your help…
The pension world is constantly evolving, with legislative changes put in place to help improve life financially after work. Yet despite these changes, it’s alarming that recent research shows many people will still be financially unprepared when they reach retirement. The latest report released by the Pensions Policy Institute (PPI) has revealed that only around half of people will be able to maintain an acceptable level of income when they retire.
The report highlights the frightening statistic that the UK is currently on course for a quarter of people (that’s around 3 million) coming up to retirement unlikely to receive even a minimum income.
“Those earning at median levels or below, women, people from BAME (Black, Asian, Minority Ethnic) groups, carers, disabled people and the self-employed are more likely to be in the groups not meeting adequacy levels throughout retirement”.
The loss of DB pension arrangements is partly contributing to this. The PPI reported that we are currently seeing people that are coming up to retirement with lower levels of DB pension, struggling to have enough savings at retirement. And this is only likely to increase going forward, as fewer people have any DB benefits. Whilst positive developments such as auto-enrollment have certainly seen more people contributing to a DC workplace pension, this is only going to make up for part of the missing DB pension gap.
We also can’t ignore the recent impact of COVID-19. Many people will have reduced pension savings over this period due to being furloughed or becoming unemployed.
Having a less than adequate income at retirement doesn’t just affect the individual, it has a much wider reach. For example, many more people will be relying heavily on the State to provide benefits. There is now also a much longer gap between leaving work and receiving a State Pension and with the State Pension Age continuing to rise, many people will have no choice but to work longer.
The way we live our lives has changed dramatically since the pension system was first put in place. In the report, Daniela Silcock, Head of Policy Research at the PPI, said
“Changes in the way people work, save and retire mean that traditional measures of adequacy are not as relevant as they used to be”.
But how can we solve this developing issue or at least prevent it from getting worse? The PPI reports that ultimately it comes down to one or more of the following:
• Increasing private pension contribution rates
• Working for longer/retiring later
• Increasing the support of a higher State Pension; and
• Accepting that people will be worse off in retirement than previous generations.
To reach the right solution, the PPI asks the question “what is an adequate income in retirement?”. Unsurprisingly this is not an easy question to answer, it relies on a number of different factors as well as analysing and collating the views of individuals, employers and the State. Each of these groups will have their own perspectives, which is why trying to define what adequacy is, is not possible by just having input from one source – every voice matters.
The PPI has concluded from its findings that there needs to be a new agreement in place which takes into account the need for a reliable and regular income, as well as additional money to draw on in retirement. And you can’t monitor or measure success without first setting a target to aim for or a method to assess it. Setting the target for adequacy levels needs to be a team effort – with support from the Government, industry, employers and unions in order to reach an agreed way forward.
This report really brings to light the need to get these adequacy targets in place but also the importance of better communications to members. Many people will not even be aware that they are at risk of not saving enough, let alone what they can do to rectify it. We have a duty to ensure that current and future generations have the knowledge and ability to save for a comfortable retirement.
We should all be doing more to improve member understanding to support financial wellbeing in later life. This is a group mission – we should all choose to accept it!
Here at MakingGiants, we’re passionate about making communications that really resonate and engage members. We would love to talk to you to share our ideas and see how we can help you and your members. Please get in touch here.
You can read the full report ‘What is an adequate retirement income?’ on the PPI website here.