People need to shift their mindset on pensions away from what proportion of their paypacket they are saving to what kind of lifestyle they want in retirement, a report out today suggests.
According to the research from The Institute and Faculty of Actuaries (IFoA), encouraging people to focus on what they want their pension pot to cover in their golden years would result in higher levels of engagement and ensure that more people do not run into financial problems after giving up the day job.
The IFoA suggested introducing a ranking system to help savers understand how close to the mark they are on their retirement goals.
Savers who could meet all necessary outgoings with no non-essential spending, for example, should be awarded with a bronze. A gold award would be reserved for those who were forecast to have more cash to spare for non-essential projects.
"Taking an outcomes based, or 'bottom up' approach to retirement saving should help savers understand how close they are to reaching their goals, and what steps they would need to take to ensure an adequate retirement income if they are falling short of their goals," said Gareth Connolly, chair of the IFoA pensions board. "Additionally, the risk of running out of money in retirement should be mitigated as much as possible to protect people from hardship or needing to fall back on the state for support."
Other suggestions in the report include developing a communication strategy which can better treat savers as individuals, creating tools to help people keep track of their savings and designing savings vehicles for retirees that balance flexibility with certainty.
In May, the Association of British Insurers and the Money Advice Service revealed that a prototype for a so-called pensions dashboard was in the pipeline, which is being designed to give people an at-a-glance overview of their pension position.