November 28, 2019
Asking ‘why’ to deliver a better retirementContact
When advisers and providers approach savers on the subject of later life planning, there are a number of questions they typically address – how much do you need for your retirement? What do you need to do to reach your goals? Are you seeking growth or income? Which products should you invest in to reach your targets?
But, as the pension savings gap becomes more acute, it might be time for the industry to change tack and consider adding a new question to their lexicon: why do you want to save for retirement?
This, on the face of it is an extraordinarily simple question. To be able to afford to live without working into your later years, of course.
OK, but why?
This affirmation perhaps takes us to the heart of the most pressing issues facing the retirement sector today – how to shift from a financial planning mindset to a retirement planning mindset. If the industry can support this, then perhaps it might become easier to help millions of Britons better provide for their futures.
Defining numbers are a poor indicator for retirement success
According to recent research, the average UK pension pot sits at around £60,000. This may seem like a tidy nest egg from a pure numbers perspective – according to a survey commissioned by the Institute and Faculty of Actuaries, almost a third of UK workers say they do not know what constitutes a ‘good pension pot’ with a fifth considering less than £100,000 to be sufficient.
This opinion is a concern. Estimates suggest the average retiree today will need to ensure they have at least £300,000 saved to live a “comfortable” retirement into their eighties, but that goes up to almost £500,000 if you reach 100 years old.
A lack of understanding of how much one will want and need in retirement is an issue for millions of Britons. According to this year’s Moneywise Great Retirement Survey, a third of women and one in five men have no idea what their income will be in retirement.
This outlook is borne out in the pension gap. The Department of Work & Pensions (DWP) estimates that 12 million people are still under-saving for their retirement despite auto-enrolment bringing more people onto the savings bandwagon. The DWP says 38% of those 12 million are not doing enough to prepare for even an “adequate” retirement.
Ask why first, and how second
It may be that asking how much you want to save is the wrong question to first engage people if they already think their inadequate savings are enough. Instead, if the industry focuses more on why people want to save in the first place, it will be easier to convince them that they need to do more.
By asking why, people may share their dreams and aspirations of annual holidays, visiting grandchildren, new hobbies, a second career and annual bungee jumps. And more realistically, they may outline their desire to not be a burden on their children and to stay living self-sufficiently in their family home. This is retirement planning at its heart. It evokes emotion, desire and fears – all strong drivers to enact change.
Once the why is established, then it’s a good time to discuss the how much. The Pensions and Lifetime Savings Association (PLSA) recently launched its Retirement Living Standards, informed by research from Loughborough University, that put a price on various levels of retirement. For example, it estimates that an average couple would need nearly £50,000 a year to enjoy holidays, good food and cultural trips. The required savings pot adds up to more than £350,000 to deliver this vision – providing a much-needed wake-up call to the millions who think their £60,000 pots will serve them well.
Guy Opperman MP, minister for pensions and financial inclusion, said the PLSA campaign “has the potential to help savers think about the future and plan for the retirement they want.”
A great salesperson or an effective advert will always sell the why long before they discuss the how in the hope that, by the time we see the price tag, we’re already sold. It might be time to adopt the same approach to retirement planning – both in adviser conversations and broader communications campaigns – by focusing on lifestyle rather than finances first.
By Lee Jones, Account Director