The target for savings should be 15 per cent of a saver’s salary, a review has shown. The Independent Review of Retirement Income (IRRI), a two-year review commissioned by the Labour party recently published its report, carried out by Professor David Blake of Cass Business School.
William Annison, director at Derbyshire-based HWWA Consulting, agrees. He said, “[15 per cent] is feasible with considerable help from employers, but hard for the self-employed. I have experienced this level of saving only when working for employers with a 10 per cent employer contribution.”
While some welcomed the recommendation, many believe it is not realistic. Alistair Cunningham, financial planning director at Surrey-based Wingate Financial Planning, said, “The figure seems sensible, but it doesn’t make any allowance for human nature. If you set a target that seems unachievable, people may tend to take no action, rather than try to go part way.”
Under the current auto-enrolment scheme, the minimum contribution as a percentage of earnings is set at 2 per cent. The report’s other recommendations included calling for “safe harbour” retirement products that savers could be ‘nudged’ into.
Mr Annison believes the recommendations simply represent a rehash of the stakeholder pensions idea. He explained that proper engagement and increased understanding of investments would eradicate the need for a safe harbour.
The report also calls for the creation of an independent pensions, care and savings commission.
However, some advisers think this could be a waste of time. “It is idealistic and great in theory, but in practice is unlikely to have much effect. We already have enough regulators who could do this job if they worked correctly,” said Mr Annison.
