Pensions - Articles - PTL urges DWP and Pension Commission to review RIR

 As a result, many of the next generation of retirees, with a background of student debt and who will continue to pay their mortgage or rent their homes in retirement will not have the income they need to survive, says Richard Butcher, Independent Trustee and Managing Director of PTL.
 
 RIRs are the percentage of working income needed to maintain the same standard of living in retirement. They range from 80% for lower earners (most of which will come from the State) to 40% for higher earners (little of which will come from the State). They are often used by DC pension schemes to measure the adequacy of contribution rates.
 
 Richard Butcher, Independent Trustee and Managing Director of PTL said: “Historically, the cost of living fell around the age of retirement because people paid off their mortgage at around the same time. This, of course wasn’t the case if you didn’t own a home, or if you took out a mortgage later in life.
 
 “Back in 1981 almost a third of 16-24 year olds owned their own home. Now, just one in 10 of 16-24 year olds are in that position and the trajectory appears to be downwards. This implies both that fewer people will own a home when they reach retirement and that those that do will still have a mortgage to pay. The reasons for this are obvious, mostly relating to the growth in house prices relative to average earnings and the accumulation of educational debt, but the impact is frightening. From a cost of living perspective it means that the majority of future retirees will still be paying rent or a mortgage and so will need a higher RIR to maintain their standard of living.
 
 “This significant change in many peoples’ living situations is not taken into account in the Replacement Income Ratio as it stands and we urge the DWP and Pension Commission to review their calculations.”