The Investing and Savings Alliance (Tisa) has called for a review of financial guidance rules warning firms were limited in the help they can offer to savers based on current regulation.
In a report published today (February 11), the cross-industry body reinforced the need for the pensions industry to offer tailored support and guidance to savers, as people are currently not saving enough to get them through retirement.
Tisa said clarification of the current regulation surrounding financial guidance would help to address the issue of under-saving as many firms were cautious about giving out personalised information for fear of breaching these rules as they are too ambiguous.
Renny Biggins, retirement policy manager at Tisa, said: “According to the Financial Conduct Authority, only 8 per cent of the population receive financial advice. This means around 47m people fall into the guidance gap, where firms are limited in the help they can offer based on current regulation.
“This is creating significant consumer detriment. The majority of people don’t know how to properly manage and evaluate their savings – particularly when sudden life events throw things off course.”
He added for auto-enrolment to be a success there needs to be more education and guidance on defined contribution schemes to help people understand how much they will need to save for later life.
Mr Biggins said: “The ambiguous nature of the current regulation reduces both the quality of the guidance available, as well as access to services the private sector could make available free of charge to the mass market.
“We believe a regulatory rethink is critical in addressing the issue of under-saving and would go a long way in helping people understand what they need to do in order to reach their retirement goals.”
Tisa’s analysis found the average UK household still renting in retirement was likely to exhaust their pension provision 12 years sooner than homeowners, based on current levels of auto-enrolment contributions.
The age at which a private pension fund would be exhausted for lifetime renters versus homeowning UK households is shown below:
Auto enrolment contribution level | Lifetime Renter | Homeowners (mortgage paid off at 64) |
8 per cent | 81 | 93 |
10 per cent | 84 | 99 |
12 per cent | 87.5 | 105.5 |
Tisa called for the auto-enrolment minimum contribution level to be raised to 12 per cent to allow savers to achieve a moderate level of retirement but said this alone would not solve the issue of poverty in retirement.
The body also wants the government to implement its proposals to lower the age range for participation in auto-enrolment to 18 by 2022.
Mr Biggins said: “Current levels of contribution at 8 per cent clearly won’t cut it for those households that don’t own their home.
“Based on our research, increased contributions of even 12 per cent would be insufficient in isolation for families unable to get on the housing ladder. Should renters also have to face care costs, they could quickly find themselves in pension poverty, without any housing wealth to fall back on.
“The perennial political debate around the best way to fix the housing crisis is unlikely to be resolved any time soon. But what this report drives home is the critical need for consumers to be armed with more information and better choices that reflect the new reality of retirement.”
Steven Cameron, pensions director at Aegon, said: “This thorough analysis from Tisa adds further weight to the evidence that while auto-enrolment has been successful in getting millions more saving for retirement, the current minimum contribution of 8 per cent is simply not going to be enough for most people to live the lives they want in retirement.
“For many, 12 per cent throughout their working lives is a more realistic benchmark of what they, along with their employer, may need to contribute.”
He added: “Until now, little attention has been given to the impact of home ownership on income needs in retirement, and therefore on what proportion of earnings people should be saving.
“Homeowners who have paid off their mortgage are in a better position than those who anticipate renting in retirement, as ongoing rent will be a significant addition to their retirement expenditure.
“This further strengthens the need to help individuals understand how much they personally should be saving to be able to afford the retirement they aspire to. There’s a key role here for advice as well as more personalised guidance.”
amy.austin@ft.com
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