The Pension Policy Institute (PPI) underscored the need to rethink retirement income adequacy in its latest report: “What is Adequate Retirement Income? “.
It reveals that only about 50% of people can expect to maintain a personally acceptable level of income in retirement.
The PPI found that the proportion of people not achieving adequacy increases significantly if the right to PD is not included. Depending on the calculation method, this proportion can vary between 40% and 98%.
The report says it underlines the importance of defined benefit pension rights for current pensions. He added that this could be a concern for future generations who will reach retirement with lower PD entitlement levels.
However, PPI said future retirees will receive more DC pension income due to automatic enrollment. However, this will only compensate for part of the difference in DB.
The report also highlights that it can be particularly difficult for under-pensioned groups to achieve levels of adequacy of the basket of goods. While they may find it easier to meet the working-life replacement rate targets, these will only reflect low working-life income. Consequently, it can result in poor living conditions both during working life and during retirement.
Savers are not doing enough to meet retirement standards
Under-pensioners can include women, multiple ethnic groups, caregivers, people with disabilities, and the self-employed.
As a result, the report adds that they are likely to depend on the level of income provided by state pension and state benefits. It also indicates that people in these groups will benefit the most from private retirement policies designed to include low-income people or the self-employed.
Report shows lower and median incomes will struggle to meet adequacy goals above the minimum throughout retirement.
Low-income people won’t be able to maintain adequacy goals for more than a few years after retirement, she suggests.
Median employees retiring at age 67 and using their defined contribution retirement savings will only be able to maintain a comfortable standard of living up to age 70. They will be able to live with a moderate standard of living up to age 75 and an active life replacement rate up to age 78. running out of DC savings.
Government retirement income and defined benefit savings should be sufficient to enable them to maintain a minimum level of adequacy throughout retirement.
However, the PPI warns that future generations may have a harder time meeting minimum goals throughout retirement. This is because they will have lower average PD eligibility levels.
The PPI also reports that people face increasing additional demands on retirement income. This is due to the growing gap between quitting work and collecting state pensions, paying rent in retirement, paying off debts accumulated during retirement, and supporting other family members.
On top of that, the report states that Covid-19 may have financial behavioral consequences for adequacy. People from under-pensioned groups will be more exposed to the subsequent impact of the pandemic.
Daniela Silcock, head of policy research at PPI, said: “The changes in the way people work, save and retire mean that traditional measures of adequacy are no longer as relevant as they are. were previously.
“A new consensus is needed to generate retirement income adequacy targets that people can use and that provide both income and liquid capital in retirement.
“Reaching consensus will not be easy as it requires the agreement of industry, employers and unions and the overall support of government to ensure that all key stakeholders play their role. “
She added: “Therefore, government action to continue this program will soon be needed, to help prevent future generations of older people from experiencing poor living conditions in retirement.
“Under current adequacy measures, it is unlikely that a quarter of people nearing retirement will achieve a minimum acceptable standard of living in retirement and less than one in 10 people can expect to achieve a standard of living. comfortable.
“These striking figures underscore the urgency of developing adequacy goals that are relevant, accessible and achievable for those who save today and for future generations. “