Worse than this, if you look at the Australian example of what happens once annuity purchase at-retirement is made voluntary, the tendency to run out of money in-retirement is clear. Down under 40 per cent are running out of money before they are 75 years old, a quarter by the age of 70.
We also know from the US experience many pensioners are taking out 8 per cent or more of their retirement savings pot each year once they are retired. On average, at that rate you run out of money within 17 years. So if you retire at 65 you might hit the financial buffers aged 82 years.
But many of us have parents well into their 80s already, so it is highly likely we will join the growing ranks of the octogenarians (or older still) ourselves.
It is in this context that decision-makers face considerations like the potential for auto-escalation of AE pension contributions to ward off mass under-saving which the next generation of retirees are currently exposed to.
There is a great deal in this paper which warrants discussion. To quote author and motivational speaker Zig Ziglar: “The first step to solving a problem is to recognise that it does exist.” This paper lays out the scale of the problem admirably.
“We have a great deal of discussion and innovation to work through before we can hope to solve it satisfactorily. Yet the consequences of not addressing this issue would be dire for many older people.
Adrian Boulding is director of retirement strategy at Dunstan Thomas