The IFoA is concerned that many people relying on DC savings to fund their retirement are not currently saving enough to achieve the lifestyle they might hope for or expect. Our work aims to draw attention to this shortfall, and explore the ways in which public policy and individual saving habits might help to close the gap.
A survey commissioned by the IFoA in 2019 revealed that 70% of savers whose workplace pension is their main form of retirement saving, contribute no more than the minimum into their pension. The IFoA’s research suggests that those expecting to afford more financial control in retirement will need to save well above the AE minimum contribution.
Our analysis is based on the Pensions and Lifetime Savings Association’s Retirement Living Standards, which set out the cost of three distinct lifestyle levels of retirement: Minimum, Moderate, and Comfortable. We have identified three Savings Goals, linked to these three living standards:
1. People saving at the minimum level mandated by automatic enrolment, and with a full National Insurance record, should be on track to achieve the ‘Minimum’ retirement living standard.
2. Someone on average full time earnings will need to save around a quarter of their income (26%) to be on track to achieve the ‘Moderate’ retirement living standard.
3. Someone aiming to achieve the ‘Comfortable’ retirement living standard will need to save more than double what they’d need to save if aiming for ‘moderate.
The Retirement Living Standards offer a useful framework by which to take a bottom-up approach to assessing pensions adequacy. But many people will be aiming for a lifestyle in retirement that is somewhere between the ‘minimum’ and ‘moderate’, or ‘moderate’ and ‘comfortable’ targets. In our second paper, we present a new rule of thumb to help people break down the retirement living standards and target something that is more tailored to their personal circumstances. Focussing on the gap between the existing ‘minimum’ and ‘moderate’ targets, the paper suggests a monthly savings goal for someone aiming for a ‘modest’ income in retirement.