We need people to start ‘acting their age’ when it comes to pensions.
There are many different suggestions of how much you should save to be able to achieve a comfortable retirement.
Some suggest a steady rate of between 11 per cent to 16 per cent throughout your working life (assuming you start to save in your early 20s).
Senator Elizabeth Warren, a bankruptcy professor, has taught the 50/30/20 rule where 50 per cent of your income is for essentials, 30 per cent for discretionary spending and 20 per cent should be allocated to saving.
An actuarial adage is saving half your age; in other words if you are 20 then you should be aiming for 10 per cent of your earnings.
Whichever metric you use, what is clear is that the later in life you start saving the harder it becomes, and the more you’ll have to put away. For example, if you start at age 25 and save 15 per cent that would be great.
If you only start saving at age 30 that percentage increases to 21 per cent, 30 per cent at age 35 and an eye-watering 43 per cent if you only start at 40 .
However, a significant number of people are not aware of the above recommended ratios.
The saving ratio in the UK is worryingly low and a lot more needs to be done to teach people. TISA’s Kick Start project focusing on providing financial education for kids is a fantastic start but we need more of these initiatives.
This is where the pension dashboard and the idea of ‘Acting your age’ - a concept developed on the 12th and 13th April in the Pension Dashboard Tech Sprint by Bravura Solutions, True Potential and MyFutureNow - comes in.
As well as allowing people an overview of their current pension pots, the dashboard could provide the opportunity to inform and educate people on how much they should be aiming to save.
If developed, the dashboard’s data could be used to understand the individual’s saving behaviour by using their age, their income, their current savings and contribution rates. This information could then be used to calculate the members ‘saving’ age.
If a members actual age is above this, it means that they are not currently showing the correct savings habits for a trajectory to meet their retirement goals. At this point knowledge can become power and members could be shown a number of different options to try and catch up.
Options could include increasing monthly contributions – either for the long-term or just for a period to boost you up – or, contributing a lump sum to get you back on track.
The aim of this approach would be to try and avoid creating a negative experience by showing them that they are in control of their outcome and recommending tangible solutions to help them catch up.