Seven Investment Management (7IM) said it welcomes the FCA’s Retirement Outcomes Review, and has responded with four key recommendations. They are:
- Establish a ‘rule of thumb’:
7IM said it believes people need clearer savings targets and a quick way to see what their current savings might generate when added to a state pension. It suggests the “25x pensions rule” – “take the annual income you want in retirement and multiply it by 25 to see roughly how much you might need in savings” or “take your retirement savings and divide by 25 to see what income you might expect in retirement.”
- Deliver better online with easily available tools for savers:
In addition to the rule of thumb, better apps and online tools are needed to help people work out just what all their different savings pots add up to and how changing levels of investment risk might influence their retirement income.
- Make retirement saving compulsory for everyone:
The investment manger admits it is concerned that, when people using the rule of thumb or apps work out just how much they will have to save for retirement, many will be demoralised and may be dissuaded from doing anything. It believes the only way to really promote committed pension saving will be to make it compulsory, as it has been in Australia since 1992.
Verona Smith, Head of Platform at 7IM and herself an Australian, said: “There was opposition to compulsory saving initially, but now Australians are among the best prepared for retirement of any workforce in the world. Here in the UK, auto enrolment, which people can opt out of, is the start of a journey that has to conclude with compulsion and with far more serious levels of contribution. The sooner we get there the better,” Smith said.
- Improve financial education for all ages:
7IM says a more joined-up approach to financial education is also necessary from school years through to the workplace and beyond.Justin Urquhart Stewart said: “Essentially, we need to start early and never stop! If we seriously commit to helping people understand the important basics of investment and saving then we are more likely to see them making smart financial decisions.”
Justin Urquhart Stewart, Co-Founder and Head of Corporate Development at 7IM, said: “The regulator is understandably concerned about the options and information available to people at the stage where they can access their pension. The interim findings are well researched and thoughtful – but unless we do more to get people to save and invest wisely long before this point it’s a bit like fretting over the pressure of your tyres when they’re actually bald.
“There is a huge education job to be done, and good quality online retirement tools have an important role to play. But compulsion is key…”. He added that, while auto enrolment is a good place to start, “the UK is on a journey that has to end with compulsion.”
Matthew Yeates, Quantitative Investment Manager, 7IM (and co-author of 7IM’s pensions discussion paper, ‘Challenging Traditional Attitudes towards Risk and Retirement’) said: “Whilst much of the emphasis is on the decisions made by savers at retirement and beyond, more needs to be done to encourage people to save sufficiently, effectively and sooner.”
Yeates argues that, according to the FCA Retirement Outcomes review, a number of people taking money out of their pensions – 32 pct – seem to be moving the majority of it into cash products.
“We are concerned that many investors may be taking a level of investment risk they believe they are comfortable with without fully appreciating the long-term consequences.” Yeates said.
He added that, in the absence of good advice, people may well remain comfortable until their money suddenly runs out – “possibly at the point in their lives when they are most vulnerable.”