Opinion: Shock tactics needed for retirement saving
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Earlier this week, the Pensions and Lifetime Savings Association (PLSA) updated its retirement living standards for the first time since they were established two years ago.
The standards are constructed to give people an idea of how much they will need to enjoy the lifestyle they want when they retire, hence there are three different levels: minimum, moderate and comfortable.
The latest annual budget for the minimum standard is £10,900 for a single person and £16,700 for a couple.
According to the PLSA, the minimum retirement living standard “covers all a retiree’s needs plus enough for some fun – including social and cultural participation. It includes a week’s holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week. It does not include budget to run a car.”
That a couple couldn’t afford to run a car on £321 a week after they’ve managed to feed themselves and enjoy some ‘fun’ and ‘affordable leisure activities’ is hardly surprising. This is not a king’s ransom, yet the PLSA maintain that: “Through a combination of the full state pension of £9,339 per year and auto-enrolment in a workplace pension, this level should be very achievable for most people.”
Hopefully, these figures will come as a shock to many people aged under 50 who will be asking themselves ‘how on earth do retirees manage?’ I say ‘hopefully’ because it might prompt folks who consider themselves a million miles away from retirement to do something about ensuring their pension incomes are considerably higher.
Achieving the PLSA’s moderate retirement living standard should be an achievable aspiration for most folks. In addition to the minimum lifestyle, it provides greater financial security and includes a fortnight’s holiday in Europe and a budget that enables people to eat out “a few times a month”.
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Nonetheless, people enjoying the moderate standard could hardly be accused of living the high life: the annual budget for a single person is £20,800 (91% higher than the minimum) and £30,600 for a couple, 83% higher than the minimum.
Of course, most of us will want to slot contentedly into the comfortable retirement living standard, the threshold for which is £33,600 for a single person and £49,700 for a couple. At this level of income, retirees can expect to enjoy some luxuries like regular beauty treatments, theatre trips and three weeks holidaying in Europe every year.
The pandemic’s impact has not been overlooked in these calculations. A number of retirees said the loss of freedoms caused as a result of Covid-19 highlighted the importance and value placed upon foreign travel and holidays. The pandemic had reinforced the importance of having choices and opportunities, but also economic security.
The PLSA noted: "The pandemic has prompted people to think about their preparedness for retirement and [the level of] resources necessary to provide the living standard they want.
“While some people will have been stirred into action by the pandemic – assessing pension plans and savings – many others have not, and finding ways to engage individuals across society in thinking about and planning retirement remains a crucial task.”
I might have an answer.
A few weeks before their latest research was published, the PLSA released a report which revealed that almost half of non-retirees (46%) had little idea of how much the state pension was worth.
Presumably they were shocked when they discovered the comparatively paltry sums involved. No wonder three-quarters of them said they could save more in their pension by an average of £68 per month.
Shock tactics have long been used to persuade people to either stop doing something harmful to their health (smoking) or to encourage a practice likely to benefit them (wear a seatbelt). Perhaps this is what we need to do with pensions.
The PLSA deserve great credit for commissioning reports that indicate to younger folks just how tough retirement could be. Fortunately, the under-50s have an opportunity to rectify matters and to improve their lot by saving more for retirement.
Yes, yes – it’s a million miles away for most. But that’s no excuse for not increasing their regular level of saving. There is one hugely important reason why younger people should save as much as they can: life expectancy.
As life expectancy rises, or even remains at its current level, the age at which people become eligible to receive a state pension (currently 66) will also rise. Plans are already in place to raise the retirement age to 67 and, as most other nations are planning further rises, it’s reasonable to assume the UK will follow suit. This means that anyone aged 35 and below can probably expect to receive a state pension – in some form – when they’re in their early-to-mid-seventies.
Furthermore, it would be foolish for these youngsters to expect a full state pension. This too is likely to be jettisoned and become means tested, probably payable to no more than 25% of pensioners by, say, 2060.
If that doesn’t shock people into saving more, I’m not sure what will.