The majority of savers believes retirement planning would be much easier if the UK had retirement income targets, according to research from the Pension & Lifetime Savings Association (PLSA).
The industry body, which commissioned a poll of 1,500 individuals aged 18 to state pension age, found seven out of 10 people argued targets would encourage them to save more.
In a report published today (5 July), following a consultation launched last year, the PLSA is recommending the UK government to introduce such targets, which are currently used successfully in Australia, and will provide savers with tangible income goals in order to achieve different standards of living in retirement.
The trade body proposed three target levels covering ‘minimum’, ‘modest’ and ‘comfortable’ incomes, with carefully chosen titles to ensure they are interpreted correctly.
The PLSA has commissioned an independent research institute to identify the targets by early 2019.
The industry body research also showed that eight out of 10 people aren’t sure they are saving the right amount for retirement, while 51 per cent wrongly think the auto-enrolment minimum pension contribution level is the government’s ‘recommended amount' of money that they should be setting aside for retirement.
Auto-enrolment minimum contributions will increase to 8 per cent in 2019, after increasing to 5 per cent this year.
However, there is a still a risk that this contribution level will not be enough to allow many savers to live comfortably in retirement, the PLSA noted.
The industry body is calling for the minimum level to increase to 12 per cent of salary between 2025 and 2030, which should be equally split between employer and employee.
The PLSA is also recommending a new regulatory framework, where schemes and providers signpost savers to appropriate product options at retirement.
The Financial Conduct Authority (FCA) announced last week that it is also planning to force providers to offer their customers easy to access ready-made drawdown investment products.
According to Nigel Peaple, director of policy and research at the PLSA, millions of savers are confused about whether they’re on track for the lifestyle they want in retirement.
He said: “We believe that a simple and widely promoted system of retirement income targets would make it much easier for savers to know whether they are saving the right amount.
“However, targets alone will not be enough. Today we are setting out our vision for a retirement savings system that helps everyone achieve a better income in retirement. We are proposing a range of measures and would like the government, pensions sector and regulators to work together to take these forward.”
Jack Dromey, shadow pensions minister, called the PLSA’s report a “valuable initiative” which was “extremely welcome and gives a vital insight into what is needed to supply people with a secure and comfortable income in retirement”.
He said: “While auto-enrolment, instituted by the last Labour government, has meant millions more workers saving into pensions, far too many are saving the bare minimum that will not give them a good pension to retire on.