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7 results

  • Saving for retirement: rules of thumb

  • S. D. Hyams, A. E. Smith, C. M. Squirrell, G. J. Warren, O. H. Warren, P. J. Willetts
  • Journal:
    British Actuarial Journal / Volume 25 / 2020
    Published online by Cambridge University Press:
    04 May 2020, e7
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  • Rules of thumb (RoTs) are proposed as a means of promoting higher levels of Defined Contribution (DC) pension saving and to help stimulate debate about the high and uncertain cost of pension provision, leading to the development of solutions. The Lifetime Pension Contribution (LPC) tells young people what pension contribution is required over a full working life to achieve a decent retirement income, calculated as 23% of average UK earnings. Another RoT is that each 1% of earnings provides a pension of 1.5% of earnings. Other RoTs show how costs vary by retirement age and if the saverʼs retirement planning is on track. The current high cost of pensions is partly due to low interest rates and the inefficiencies of the DC market, with inadequate bulk purchasing power and risk sharing. RoTs might help encourage higher employer contributions, either through automatic enrolment or on a voluntary basis.