PLSA Hitting the Target consultation
05 Jul 2018
Commenting on the recommendation of a target for retirement income by the PLSA in its ‘Hitting the Target’ consultation, Paul Waters, Head of Guided Outcomes, Hymans Robertson says:
“We welcome targets for retirement income but strongly believe that any universal retirement income target needs full Government endorsement to maximise success as evidenced by the nationwide multimedia campaign to introduce Auto-Enrolment in 2012.
“Targets help increase individuals’ engagement in long term saving. A single, Government supported, default target could vary dependent on salary, but should be presented in a way that can be communicated simply and effectively. Our Guided Outcomes (GO) platform has been proven to do this. Analysis on the actions of our members show that more than one in five do immediately start saving more into their pension when presented with a target. The PLSA’s proposal for communicating targets to individuals in monetary value is proven to work, and one that is more easily understood by people with different levels of financial awareness.
“For maximum engagement, however, any adoption of a universal target is best managed at an individual level through the employer’s workplace pension scheme. Our evidence has shown that when members are given clear retirement targets with regular personalised messaging it has proved to be an effective ‘nudge’ with a demonstrable increase in contributions and greater engagement.
“In the decade before retirement, proactive guidance is most important to help people understand their retirement choices. We need to ensure that people reach the point of retirement in the right situation to take their pension income. At that point advice will be needed for some but pre-retirement guidance is essential for all.”
On the inclusion of property as a source of retirement funding, Paul continues:
“It’s important to move away from the industry emphasis on pension as the only answer for retirement funding, so the inclusion of property wealth as a source of funding by the PLSA is welcome. The PLSA has rightly recognised that housing wealth is not equally distributed and its only part of the answer for the affluent few. However, we expect the lifetime mortgage (equity release) market to grow over the next two decades and this, with proper FCA supervision and consumer advice, will help to make home ownership part of the retirement income solution for a greater range of individuals. Housing as an additional source of funding is important and can help fill the gap but it must not be seen to act as an alternative. Pensions attract significant tax relief and company funding for workplace schemes, so should still be at the centre of retirement income planning.”