The FINANCIAL — The annual income required for a relatively modest but comfortable lifestyle in retirement amounts to £17,500, according to a new research report by Barclays Corporate and Employer Solutions.
The report, entitled ‘Steps Towards a Living Pension’ introduces the new concept of a Living Pension – the income level defined contribution (DC) pension scheme members feel that they would require to maintain an adequate lifestyle in retirement. In the way that the UK Living Wage is the income from employment that people need to meet their basic needs, the report explores the income that would be needed for a Living Pension to provide a lifestyle in retirement that goes beyond living costs such as food and accommodation.
Good outcomes
In contrast to a commonly held view, the research found that people’s expectations of retirement are in fact relatively modest. Visions of six month luxury cruises seem to be wide of the mark; the qualitative research revealed that a good outcome is actually described by members as an absence of negatives: not having to worry about making ends meet and not experiencing a painful drop in living standards. The research found that the top three ‘must haves’ for a desirable lifestyle in later life, in addition to essential living costs, are being able to pay off money owed, taking an annual two-week holiday abroad and being able to run a car. It was from these relatively modest ambitions for retirement that the report was able to calculate that a Living Pension amounts to £17,500 a year on average. This figure differs slightly across the generations from £18,200 for generation Y (age 19 – 33), £17,200 for Generation X ( Age 34 – 53) and £17,300 for Baby Boomers (54 -69) due to varying aspirations.
Expectations of retirement
When it comes to DC members’ expectations of retirement, the report shows that the gap between people’s expectations and the outcome their current behavior will yield is not insignificant, but many could rebalance with a few simple measures. People are anxious about having enough money in later life but are prepared to economise and make sacrifices to enjoy the retirement they want. 78% of respondents expect to work until later in life than their parents and more than half (54%) expect to watch what they spend more closely in retirement, according to Barclays.
“Concepts of retirement have fundamentally shifted, and the traditional view that it represents a full stop at the end of working life has changed. Our research shows that DC members, especially those among younger generations, see retirement as a general and protracted slow-down and much less of a sudden step change between work and leisure,” Jonathan Parker, Head of Investment Proposition at Barclays Corporate & Employer Solutions, said.
“One reason for this is that people are living longer and expecting to have to work longer as a consequence. This is why the concept of a Living Pension is so fundamental. It is vitally important people fully understand what their financial situation will look like in later life and what they have to do now to ensure they are able to achieve a standard of living they want for retirement,” he added.
Whose responsibility is it anyway?
While DC members see financial planning for later life as primarily their responsibility (93% agree that individuals should bear the responsibility for ensuring they have enough money to live on in retirement), they are also looking for support from Government and from their employer. Two thirds of members (66%) think that this responsibility should be shared with Government and 47% look to their employer to play a role, according to Barclays.
The research clearly demonstrates that employees want more guidance and support when it comes to preparing for retirement. 82% of DC scheme members would welcome help from their employer, specifically to build a wider understanding of what their current and future contributions mean for what they will have in retirement and ultimately, how this stacks up against their lifestyle expectations.
“The proposals announced in the recent Budget and Queen’s Speech have catapulted pensions into the spotlight and have highlighted the need for employers and the Government to do more to support individuals prepare for their later life. The report suggests this could involve a gradual increase of the automatic enrolment minimum contribution rates from 8% to 12% over time, coupled with greater education and guidance in the workplace, to steer DC members towards better outcomes,” said Jonathan Parker, Barclays Corporate & Employer.
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