Nest Insight is working with Phoenix Insights to address a question at the heart of retirement policy: when it comes to saving in a pension, how much is enough? And when does ‘enough’ become ‘too much’?
When you’re deciding how much money to put away for retirement, you’d ideally want to be a fortune teller, an investment guru and a Nobel Prize-winning economist, wrapped into one. Unfortunately, in the real world, nobody can take into account the many factors that will determine their unique financial experiences through to retirement. That’s why the pensions sector has worked to create simple, standardised definitions of an ‘adequate’ level of retirement savings. By brushing over the idiosyncrasies of people’s changing financial lives, these approaches offer retirement savings targets that are intended to work for most people, on average.
At Nest Insight, we strongly agree with the principle of making retirement savings clear and simple. However, we’re also concerned that these standardised approaches will be wide of the mark for a lot of households whose financial lives are far from average, and whose circumstances keep changing over time. Rather than saving more into a pension, some people might at times be better off saving to buy a property, building up emergency savings, or paying off a debt. So when we work to ensure that one group of people isn’t under-saving, how do we avoid the risk that others end up over-saving?
To help us understand this challenge, we recently completed a series of interviews and a roundtable session. We’ve spoken to experts with a range of perspectives, from government, industry, academia and the third sector. What’s clear from this rich series of conversations that our work needs to take into account a number of different factors, including:
- the present-day affordability of pension contributions, taking into account people’s other financial priorities, including debt and precautionary savings
- the stark reality that future generations are much less likely to be homeowners when they retire
- changes in the make-up of households and in earnings patterns over people’s working lives
- the complex realities of how people spend their retirement assets.
Working with a range of data sources, we’ll be taking all these factors, and others, into account in our work on retirement savings adequacy. Our aim is to produce a more contextual definition of adequacy that will work for different people, under different circumstances. We look forward to sharing our findings in the coming months.
Get in touch if you would like to learn more about this programme of work.