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Focus should be on retirement income goals rather than proportion of earnings contributed
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Tailored communications plans targeted at individual needs would be more successful than one-size-fits-all approach
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Creating a simple rating system could help savers better understand how to reach their retirement goals
The IFoA has identified four areas where adopting a bottom-up approach could improve the likelihood of savers achieving adequate retirement income:
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Shift the focus to outcomes and income needs as opposed to saving requirements.
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Develop an effective communication strategy across regulators, Government and industry that is tailored to individual needs rather than a one-size-fits-all approach.
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Create and maintain tools that help savers assess the adequacy of their savings and plan for their retirement.
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Create in-retirement default vehicles that combine flexibility with an element of guarantee.
The IFoA suggests introducing a simple rating system to help savers understand how close they are to reaching their retirement income goals:
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Bronze rating shows individuals could meet all necessary outgoings with no non-essential spending.
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Silver and Gold ratings show individuals who will have enough savings to give them some financial resilience against unforeseen costs such as household repairs or long term care needs, and those individuals who have sufficient saving to afford additional non-essential items, such as being able to travel or leave a bequest.
Showing the tangible benefits of saving may help people to gain a better understanding of how the amount they save today will affect their lifestyle in retirement, and therefore, encourage people to take greater control so that they can meet their needs for the duration of their lifetime.
Gareth Connolly, Chair of the IFoA Pensions Board, comments, “It is crucial that people are able to plan properly for their retirement and understand what steps need to be taken to ensure an adequate retirement for their individual needs. We hope that this report will go some way to assisting Government, regulators and industry in putting together a communications and planning framework that works for savers so they can plan adequately for their own retirement goals.
“Taking an outcomes based, or ‘bottom up’ approach to retirement saving should help savers understand how close they are to reaching their goals, and what steps they would need to take to ensure an adequate retirement income if they are falling short of their goals. Additionally, the risk of running out of money in retirement should be mitigated as much as possible to protect people from hardship or needing to fall back on the State for support.”
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