The ability to convert pension forecasts into something meaningful for members is a challenge that all schemes face. Read more about how we incorporate the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards (RLS) into retirement consumer tools to tackle this issue.
Presenting a fund value or income at retirement isn’t enough to engage the average member and lead them towards making positive decisions to plan for retirement.
These forecasts must be supported by benchmarks that clearly visualise the lifestyle provided and what the member can expect to afford in retirement. The PLSA’s Retirement Living Standards do just that.
Developed and maintained independently by the Centre for Research in Social Policy at Loughborough University, they describe the cost of three different baskets of goods and services, established by what the public considers realistic and relevant expectations for retirement living. These baskets comprise household bills, food and drink, transport, holidays and leisure, clothing and social and cultural participation.
Introduced in 2019, EV were early adopters of these benchmarks into our retirement planning solutions.
Widespread adoption
Members using our solutions can use the high-level minimum, moderate and comfortable lifestyles - or build a more personalised spending level by using the underlying categories - to better measure their current retirement projection. This allows members to identify their projected retirement shortfalls and begin to make small steps to improve that, resulting in better retirement decisions.
Fast-forward two years and the RLS has seen a fantastic uptake and wide adoption within our client base. In this past year, our solutions that use the RLS have supported over 90,000 member sessions. The PLSA also estimate that 50 pension providers, schemes and organisations are now making use of them.
EV Budget Planner
The spread of targets selected by users within our tools is pretty even, with 29% selecting targets lower than the minimum spend, 24% minimum-moderate, 27% moderate-comfortable, and 20% above the comfortable level. However, there is a stark contrast between this and their forecasted income from an annuity.
Assuming that all users will receive their state pension gives general protection to achieve more than the minimum standard, with only 13% forecasted to receive less. However, most users sit within the next bracket; 57% are forecasted to receive minimum and moderate retirement living standards. On the other hand, only 19% are moderate-comfortable and even less (11%) sit above comfortable.
This demonstrates the importance of using the living standards to communicate to members that they aren’t on track to support their targeted lifestyle, and therefore change is required.
Keeping up with the consumer
The PLSA has just released an update to the RLS, now incorporating more common consumer spending following lockdown living such as Netflix and a higher budget for eating out.
The changes to the three standards are as follows:
- The annual budget for the minimum standard has risen since 2019 by £700 to £10,900 for a single person and by £1,000 to £16,700 for a couple in 2021.
- The annual budget for the moderate standard has risen since 2019 by £600 to £20,800 for a single person and by £1,500 to £30,600 for a couple.
- The annual budget needed for a comfortable retirement living standard has increased since 2019 by £600 to £33,600 for one person and £2,200 to £49,700 for a couple.
The impact of lockdown
As part of the update, the PLSA also commissioned a report on ‘The impact of COVID-19 on thinking about and planning for retirement’, with an excerpt below.
“Many participants said the loss of freedoms as a result of the Covid-19 lockdown had highlighted the importance and value placed upon foreign travel and holidays. In addition, the pandemic had reinforced the importance of having choices and opportunities and economic security – central concepts and ideas contained within the definitions of the Retirement Living Standards.
What is clear from this research is that the pandemic has prompted people to think about their preparedness for retirement and whether or not they are likely to have the resources necessary to provide the living standard they want.
The updated Retirement Living Standards offer a starting point, moving beyond retirement cliches and stereotypes, in setting out concrete examples of what retirement ‘looks like’ at a minimum, moderate and comfortable standard.”
So what next?
We were delighted to make the shortlist of the PLSA’s RLS awards for consumer engagement at their 2021 conference for our solutions.
If you’d like to learn more about our EVDirect retirement planning solutions and understand how these solutions can support your members in making better retirement decisions, please email me to get in touch.