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Why we must tackle Britain's retirement savings inertia

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The first person who will live to 150 has probably already been born. There are already 13,000 centenarians in the UK, a five-fold increase since 1980.

If someone told you today that you are going to live to 150, how would you feel? The notion is pretty alarming to me.

Many of us are far too busy today to be thinking about the distant future or the fact that living longer means spending more time in retirement.

It may seem somewhat morbid, as the Government has recently proposed, to be told when you might die, but if it helps to tackle the inertia that exists around saving for retirement, then it has to be a step in the right direction.

The Budget introduced measures to give people more choice and flexibility with their retirement savings. Our customers tell us that they love that flexibility. But they also tell us they are scared of out-living their savings.

Choice and flexibility mean very little if people have not saved enough for their retirement in the first place.

We have a society that is chronically under-saving. Half of people retiring have less than £20,000 in their pension to supplement the state pension. Given the average length of retirement has increased to 23 years and the average cost of long-term care is up to £30,000 per year, it is clear that the sums don’t add up.

The sheer scale of the challenge can put people off saving early. A prolonged period of low interest rates has been good for borrowers, but devastating for savers. As a nation we are emerging from a deep recession still very much felt by individuals and households. And an uncertain and complex tax regime has discouraged other savers.

In an ideal world, everyone would be saving enough to fund a comfortable retirement. That, I believe, is a long way off. What I do believe is just as important now is tackling the savings inertia.

It is incumbent on insurers, the Government, and the Financial Conduct Authority to create a simpler, clearer and more stable environment where people can save and make investment decisions with confidence and certainty and take responsibility for their choices.

There is no silver bullet, no single lever that can be pulled. It requires change across the board.

People need clear, simple products. The insurance industry must continue to innovate to meet customers’ changing needs and it must ensure the products it offers are simple, clear and fair if it is to encourage saving. Complexity must be consigned to the past.

The Government’s proposed new guidance service to help customers make the right choices as they reach retirement must be flexible enough to be delivered either face to face or online. But in order to help us all save early and often, access to guidance, education and information must be available throughout a person’s life, not just at retirement.

The tax environment must support rather than penalise people for saving. For example, currently if someone dies while drawing their pension, the remaining fund is taxed at 55 per cent, far more than the tax relief they received in the first place.

While the Government recognises this is completely at odds with allowing drawdown income to be taxed at pensioners’ marginal rate of tax, it needs to put forward a solution otherwise pensioners will have every incentive to take out the whole of their pension pot far too early.

The best of the insurance industry are often tarred with the same brush as the worst. A strong regulator will serve the industry well by building trust, a key ingredient when it comes to encouraging people to save, and save early.

Many of the right steps have been taken. As well as the Budget measures bringing greater flexibility, the introduction of auto-enrolment is helping millions start saving for the first time.

The insurance industry, the Government and the regulator need to work together to look to the long-term, to look beyond electoral or job horizons, and tackle one of society’s greatest challenges – funding retirement. We owe it to those who have worked so hard for so long.

Mark Wilson, chief executive of Aviva speaking today in The Daily Mail.

 

 

 

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