Deloitte’s forecast of £350 billion by 2050 is nearly £32 billion more than the firm estimated just five years ago. Should the highest population projections come to bear, this could be as high as £374 billion. Reasons for the widening savings deficit include strong population growth forecast to reach 77 million by 2050*; pressure on the public purse; the gradual closure of defined benefit (DB) schemes; and, the rising cost of health care and long-term care creating a requirement for income during retirement.
Andrew Power, investment management partner at Deloitte, said: “Despite welcome efforts by the Government to tackle the savings gap through auto-enrolment and raising the pensions age, challenges still exist. People are living longer; many would rather spend today rather than save for tomorrow; and few know how much they actually have tucked away. Separately, the Government is no longer as generous with tax incentives. As a result, we’ve seen significant changes in pensions over the last year.
“If savers want a particular standard of living at retirement, then they will need a greater awareness of what must be saved today. One possible solution would be to make it easier for people to securely access and see all of their pensions – whether public or private – in one place. That way, everyone would have an idea of their own pension pot and where they might be falling short. This could motivate individuals to make more informed decisions and a better plan for their future.”
Deloitte estimates that the investment management industry could bridge the gap by up to 50% of the long-term savings gap by developing straight-forward products, using technology and being clear in their communications with savers.
Mark Ward, head of investment management at Deloitte, commented: “Today’s challenge won’t be met by the Government alone. The investment management industry, together with policymakers and regulators, will need to step in and work together on a solution.
“Savings products should be simple and jargon-free and providers will need to be transparent on what they can achieve in terms of savings. Also, tailored products will be important, as the ‘one-size-fits-all’ approach simply doesn’t work on a population wide basis. Technology will also play a key role, not only to drive cost savings, but to meet the digital demands of a younger generation. Engagement and communication through social media and app technology could ensure retirement savings are fully funded from an early stage.
“There is a great deal of industry pressure on the cost of products, something that is only going to continue as new competitors look to steal a march with new savings solutions. The investment management industry will need to respond with products in a low-cost environment in order to remain profitable.”
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