The pensions industry hasn’t historically enjoyed the greatest of reputations when it comes to securing engagement from those saving for retirement.
Issues highlighted have included the use of technical jargon and a lack of simplicity in product design, literature and websites; a focus on fear-based communications – “you’re not saving enough; you need to pay much, much more”; and a lack of ability to segment communications to better focus on different types of savers.
Some of that criticism is fair – there is clearly still much to be done to improve engagement with pensions.
Although when I hear these comments and set them against my own lack of ability to engage with something as fleeting as the latest ‘must-see’ boxset, I do question how realistic it is to expect ongoing engagement throughout a pension savings journey which will potentially last 50 or more years!
With engagement in mind, it was interesting to hear about the PLSA’s recent conference launch of a set of retirement living standards.
If you haven’t looked at them, the standards aim to help people paint a picture of their own lifestyle in retirement, and what that lifestyle might cost.
The standards are based around three different levels of living in retirement – described as minimum, moderate and comfortable.
They give both single retirees and couples an idea of what their life could look like and the level of post-tax income that might be needed to live that type of life.
The income requirements have been set at figures of around £10,000, £20,000 and £30,000 for the bands of single retirees. The figures for couples in each band are 50% higher.
Anyone wishing to dig slightly deeper into the figures can then find out what they mean using practical examples covering a number of areas including food & drink, holidays & leisure, and clothing & personal costs.
The figures are based on independent research by the Centre for Research in Social Policy at Loughborough University and are based on the minimum income standard which was developed by the same group back in 2006.
The aim of the PLSA is for these standards to be adopted across pension’s communications from both the savings industry and government by 2025.
Perhaps unsurprisingly, and also I think disappointingly, attempts have been made to pick apart the precise detail of the figures in various quarters.
Questions have been asked as to whether many of the figures stand up to scrutiny when set against the expectations of different parties of minimum, moderate and comfortable living standards.
One commenter on a well-known retirement savings forum expressed their opinion bluntly as “it’s pretty naff, it’s trying to decide how long a piece of string is”.
Others have pointed out that the figures don’t provide any information on the value of pension pot needed to achieve the various income levels.
While both of these criticisms have some validity in isolation, it does feel as though both miss the point when it comes to the broader aims of the standards.
The “piece of string” criticism appears to miss the point entirely. No figure is ever going to be accurate for all, but these figures help to give people at least an idea of how long their own piece of string might be.
As someone who is far closer to retirement than I’d like, I can’t say with more than a moderate degree of certainty what the lifestyle I’d like to achieve in retirement is going to cost.
The standards don’t provide a precise answer, but I’m sure they’ll give me and many others a better idea than we had previously.
Missing the point
The comment that the standards don’t give an indication of the value of pension pot needed to support the income also misses the point.
The intention is for pension providers to build these standards into wider communications, which I’m sure will include further information enabling this link to be established.
On at least an annual basis providers communicate with customers about the current value of their pension pots and/or the income that those pots will provide in retirement. It isn’t a massive leap to see how the retirement living standards will slot into these communications and provide an additional building block enabling people to picture what their retirement might look like.
A personal frustration with criticism of initiatives aimed at helping savers to engage with their retirement is the lack of acknowledgement that there is no magic bullet here.
The standards won’t solve the retirement savings gap on their own but, when added to the measured success of auto-enrolment and ongoing efforts to beef up communications from an earlier stage in the retirement journey, they will help.
It is often far easier just to criticise initiatives than to come up with ideas of our own, a behaviour which has the potential to derail positive proposals.
I’m declaring myself a fan of the retirement living standards and hope they play a valuable part in meeting the challenge of increasing engagement.
Gareth James is head of technical at AJ Bell