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.
What is really important is that we continue to think of ways to engage more people with pensions and savings.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.
If we want people to engage with their pensions they will need to know what they can do to improve their outcome and they will need to be able to do it easily.
All of these changes could and should be able to be made within the infrastructure of the dashboard. By using technology in a similar way to online banking, the dashboard could make topping up your pension pot as easy as the click of a button.
By encouraging people to ‘act their age’ through small steps, you are using the gratification of short-termism to achieve long-term gains. Once this goal is reached the dashboard could even show people options to accelerate their savings age and play around with retirement dates etc.
However, if you have to ring up a provider, or get in touch with your employer to increase your contributions, you are creating unnecessary barriers that make it easy for people to disengage from the process.
This is just one idea and approach, and it would certainly need to be developed further through consumer testing.
However, it is a good example of collaboration between businesses looking at achieving innovation that truly benefits consumers.
Whether it’s through this idea, the others presented at the Pension Dashboard Tech Sprint or through further innovation, what is really important is that we continue to think of ways to engage more people with pensions and savings.
Technology can be a wonderful avenue and the dashboard seems like the perfect place to test out how successful this could be.
In its current form it’s set to be a helpful tool, but if we think a bit more ambitiously, it could turn into a significant opportunity to help individuals on mass work towards better financial capability and a better financial future.
Natanje Holt is business development manager at Bravura Solutions
