Aviva calls on government for ‘blueprint’ of pension savings support

Aviva, as one of the UK’s leading pension providers, has called on government, regulators, and the wider industry today to work together to develop a blueprint of the support those retiring in the 2050s need, to overcome the challenges they face, before it is too late.

Working with UK economics consultancy, WPI Economics, Aviva has today published a new report: ‘Planning for retirement in the 2050s’. This report analyses the challenges facing those who are set to retire in the 2050s – aged 32 to 40 today – and explores the support and policies they need to manage their wealth in later life.

Drawing on new evidence and analysis to understand what retirement will look like for future retirees, the report examines pension savers’ knowledge and understanding of how much they need to save to retire comfortably, how to invest their money, and where to go for help and guidance so that their pension wealth lasts throughout retirement.

The report reveals that a typical middle-income earner, contributing 8% of earnings into a defined contribution pension throughout their working life, could retire with a pension pot of £225,000 or more in the 2050s. Although significant, this level of wealth is unlikely to provide someone with a ‘moderate income’ in retirement, according to the Retirement Living Standards (PLSA). Aviva found that a typical middle-income earner paying an extra 2% into a pension each year could increase their total pension pot by £56,000 by the time they retire.

The survey³ found just under one in five (19%) say they feel completely or somewhat prepared in terms of how they will fund their retirement. Most (64%) say they do not know how much they need to save into a pension to realise their desired retirement income level, and over half (52%) would not know where to start when it comes to planning for their retirement.

The report highlights the support this new mass market of savers with defined contribution pensions will need to navigate incredibly complex decisions about how to convert their pension wealth into a decent income stream throughout retirement. Key to this is transforming professional support, from introducing simplified and hybrid advice for defined contribution pensions, to delivering more effective, personalised communications and guidance, and developing a new approach to whole-of-retirement planning.

Doug Brown, CEO of UK & Ireland Life at Aviva says: “The pension landscape has changed significantly over the past decade, but the introduction of important initiatives like automatic enrolment in 2012 and pension freedoms in 2015 have not yet been matched by the wider support needed to help people make the most of the opportunities available to them. This needs to change and change quickly if we are to help future retirees.

“Almost 3.4 million people are expected to retire in the 2050s with accumulated pension pots of more than £225,000. The vast majority of these will need financial advice, and everyone will need robust, well-designed professional support in their decision-making and planning, but the majority say they have no idea where to begin. Despite this, there is no clear vision of the support people need, and consequently policy is piecemeal and insufficient – leaving savers at risk from poor decisions. Government, regulators, and industry need to work together to develop a blueprint of the support that pension savers need and take steps to put that support in place, so future retirees are able to make better decisions and achieve more positive retirement outcomes.”

Key actions

Aviva has set out a list of key actions for government, regulators, and the wider industry, to help support pension savers today and future retirees, which include:

1.     Transform professional support to make it work for this new mass-market for wealth management:

• Set a policy ambition that defined contribution pension savers (particularly those retiring on more than £200,000 pension pot) take up some form of professional advice.
• Focus the current review of the advice framework⁴ on what support is needed to properly serve this new mass market, for example simplified advice for pensions.
• Remove regulatory barriers to allow providers and other regulated entities to deliver more effective support, such as personalised guidance.
• Promote the delivery of pension advice and guidance through workplaces.

2.     Set a clear roadmap for expanding auto-enrolment over the next decade:

• Deliver the 2017 auto-enrolment review which recommended lowering the age threshold for auto-enrolment from 22 years to 18 and removing the lower limit of the 'qualifying earnings band,' so that contributions are paid from the first pound earned.
• Sustainably increase minimum pension contributions above 8%. Aviva believes, if it is affordable, employees should aim to save at least 12.5% of their salary towards their pension every month. They do not have to do this on their own because employers make contributions on their behalf, and they get tax relief on the money they put in.
• Deliver the 2017 auto-enrolment review which recommended lowering the age threshold for auto-enrolment from 22 years to 18 and removing the lower limit of the 'qualifying earnings band,' so that contributions are paid from the first pound earned.
• Sustainably increase minimum pension contributions above 8%. Aviva believes, if it is affordable, employees should aim to save at least 12.5% of their salary towards their pension every month. They do not have to do this on their own because employers make contributions on their behalf, and they get tax relief on the money they put in.

3.     Deliver Pensions Dashboards Programme (PDP):

• The PDP is a significant opportunity to help people make sense of their retirement savings and take action – such as the consolidation of small pots - to optimise their chances of good retirement outcomes.

4.     Develop a new approach to whole-of-retirement planning and support:

• Develop guidelines for the effective management of defined contribution wealth throughout the whole of retirement.
• Encourage providers to work with their customers to develop a whole-of-retirement plan.
• Develop and pilot Later-Life MOTs to engage retirees at critical decision points.

-ENDS-

Methodology:

This report presents a range of analysis of the challenges facing people saving for their pension and retiring in the UK. This includes results from an online survey of 3,000 adults aged 18 to 75 across the UK, which was conducted by Ipsos on behalf of Aviva. 2,000 adults aged 18 to 75 across the US were also surveyed to provide a comparison. Fieldwork was conducted in March 2023. Quotas were applied to ensure the sample was representative of each country on age, gender and region. Those set to retire in the 2050s are defined as aged between 32 and 40 years old, and 'middle income' is defined as those on a personal income of between £25,000 to £44,999 a year.

Assumptions:

Modelling for this report is based on the typical middle-income earner, contributing 8% into a defined contribution pension throughout their working life, could retire with a pension pot of £225,000 in 2050 to provide them with an income supplemented by their state pension.

Sources:

¹ Aviva analysis of Department for Work & Pensions (DWP) data: Gov.uk | 03 Mar 2023 | Analysis of future pension incomes

(*) WPI Economics extrapolation of internal Aviva analysis. Assumptions include:

• An individual has earned/ will earn a basic pay equal to median UK earnings for their age, adjusted for wage inflation of 2.5%
• The individual joins their company pension at age 22 and contributes without interruption to age 67
• Contributions are 8% of basic pay   
• Investment returns are 2.5% above inflation
• Price inflation is 2.5%
• Projected fund is shown as today’s value 

² Pensions and Lifetime Savings Association | 2022 | How to estimate likely retirement living standards

³ Ipsos: An online survey of 3000 adults aged 18 to 75 across the UK was conducted by Ipsos on behalf of Aviva. 2,000 adults aged 18 to 75 across the US were also surveyed to provide a comparison. Fieldwork was conducted in March 2023. Quotas were applied to ensure the sample was representative of each country on age, gender and region. Those set to retire in the 2050s are defined as aged between 32 and 40 years old, and 'middle income' is defined as those on a personal income of between £25,000 to £44,999 a year.

⁴ Financial Conduct Authority (FCA) | Mar 2023 | The new simplified advice regime and the advice / guidance boundary review

About WPI Economics:

WPI Economics is a consultancy that provides economics that people understand, policy consulting and data insight. We work with a range of organisations – from FTSE 100 companies, to SMEs and charities and Central and Local Government – to help them influence and deliver better outcomes through improved public policy design and delivery. Our focus is on important social and economic policy debates, such as Net Zero, levelling up and poverty, productivity and mental health. We are driven by a desire to make a difference, both through the work we undertake and by taking our responsibilities as a business seriously. We are an accredited Living Wage employer.

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