Legal & General CEO: Urgent action is needed to get Brits saving more, earlier
For a happy retirement, savers need a £220,000 pension pot. That means urgent action is needed now to get people to save more, earlier, says António Simões
Whether it’s families around the dinner table or government around the cabinet table, pensions deserve to be a part of a national conversation. The government has rightly put them firmly back on the agenda with last week’s publication of the Pensions Schemes Bill. However, there is more to do.
Despite millions of people being brought into the pension system through automatic enrolment since 2012, the simple truth is that many UK savers are still not putting enough aside to guarantee a comfortable retirement.
This isn’t just about individual outcomes – better-funded pensions mean more capital for long-term investment in the economy.
The Local Government Pension Scheme alone is projected to reach £1 trillion by 2040, offering the potential to power national growth, creating a virtuous cycle of stronger pensions and economic prosperity.
I have long believed that UK pension savers should benefit from exposure to higher returns provided by our private markets. That is why we signed the new Mansion House Accord, which is a reaffirmation of our ambition to make pensions work hard for savers whilst helping to power UK assets. These efforts are set to be turbo charged through the new Bill.
Pension adequacy
We must now build on this momentum to turn our attention to the remaining piece of the pensions puzzle – adequacy.
60 per cent of retired people today who have no workplace or personal pension to draw on, live in relative poverty. On the other hand, L&G modelling shows that today’s happiest retirees have accrued a pension pot of around £220,000 in addition to receiving the state pension, giving them average total annual income of £20,400.
For those reading this thinking you have years of work to save up, those due to retire in the 2060s would need an annual income of at least £77,145 to achieve an equivalent lifestyle.
Those due to retire in the 2060s will need an annual income of at least £77,145 to achieve a comfortable lifestyle
We need a comprehensive strategy that tackles pension adequacy and ensures that all savers, regardless of their background, can look forward to the financially secure retirement they deserve.
The introduction of auto-enrolment has had a hugely positive impact on people, prompting millions to start saving for a more financially secure future. But we need to make sure they’re saving enough to lead the later life they expect.
This should not be the sole responsibility of individuals. Pensions firms and government need to work together to do all we can to drive up pension savings rates.
The prize is potentially huge. Australia boasts the fourth-largest pension pool of capital in the world, c. A$4,2 trillion, built by combining consolidation and diverse investment strategies with higher contributions.
There are three clear steps we should now take. Step one should be expanding auto-enrolment for workplace pensions. Lowering the participation age limit to 18 would mean that millions of people would begin saving four years earlier. This should be paired with increasing mandatory contributions for all individuals and employers – delivered in a measured way over time to ensure the impact on households and business is manageable.
The second step should be to allow pension providers to offer more tailored guidance to savers – particularly around how much they should be contributing to achieve their retirement goals. We hope the FCA’s changes in this area will enable providers to deliver more meaningful, personalised support.
Finally, long-awaited pensions dashboards will be transformative to member outcomes. We were the first company to connect a scheme, helping millions of members engage more with – and understand better – their pension pots. Demystification and ease are essential to increase saving.
These steps are a start rather than a solution to the puzzle. Government has rightly identified that pensions saving is not tomorrow’s problem. I urge it to maintain its enthusiasm for reform.
António Simões is the CEO of Legal & General, the UK’s leading pensions provider