The Pensions and Lifetime Savings Association (PLSA) has proposed a number of reforms to boost pensions adequacy, including retirement income targets to show the lifestyle people could afford on different levels of income.
In a report published today (5 July) - Hitting the target: A vision for retirement income adequacy - the trade body presents the final recommendations of its consultation into pension saving which closed in January.
The report also recommends increasing minimum contributions under automatic enrolment from 8% of band earnings to 12% of total salary by 2030, requiring schemes to signpost to ‘appropriate product options' at retirement, and improving governance with a focus on ensuring schemes offer value for money.
The report also said it should be easier for people to use other income sources such as housing equity to supplement their retirement income.
The PLSA warns that unless more money is set aside for retirement, many future retirees will find that their incomes will be insufficient to meet their retirement needs.
To help tackle these issue, it proposes the government, employers and the retirement savings sector must work together to help savers understand how best to meet their retirement income needs and plan accordingly, and set out a suite of recommendations that it hopes will be followed.
In October 2017, the PLSA opened its Hitting The target consultation to reponses, where it presented its assessment of public policy on retirement income provisions and introduced a series of proposals aimed at reforming public policy and industry practices, in a bid to facilitate better retirement outcomes.
The consultation closed on 12 January and received responses from 100 stakeholders, from over 50 different organisations. The association found that despite the success of automatic enrolment (AE), the vast majority of savers do not understand retirement savings, do not know what sort of income they should aim for in retirement, or how to achieve it.
Shadow pensions minister Jack Dromey said: "This valuable initiative by the PLSA is extremely welcome and gives a vital insight into what is needed to supply people with a secure and comfortable income in retirement.
"While AE, 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. The work by the PLSA means that the public can be clearer about what they will need when they retire and how much they need to save to achieve that."
Age UK charity director Caroline Abrahams also welcomed the PLSA's report: "The pension flexibilities, introduced in 2015, have changed the game for people reaching retirement. However we still don't know the full impact this will have, which makes it important that people are able to plan more effectively for their futures.
"We believe that retirement income targets, which set out products and lifestyle choices that people can afford based on different levels of retirement income, have an important role to play. The PLSA research highlights some concerns - for example that people don't know how much they should be saving and think the minimum auto-enrolment level is a 'recommended' amount - so anything that helps people understand how much money they will need in the future and how to achieve it is clearly very welcome."
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