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Saving your clients' retirement plans

Published: 11/09/2019

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Why consumers misunderstand how much they should save and how we can change mindsets

One of the things that makes us human is the fact that we’re not always rational. We’re complicated. We’re unpredictable. We’re individual…and we’re easily distracted. And whatever our reasoning for making a decision, we want to believe we’re making the right one.

Most of us know we need to save more for the future, but for many of us there is still a gap between what we are doing and what we should be doing. The plethora of research around saving for retirement all points in one direction, and the figures year on year remain stubbornly stuck at ‘undersaving’. Yet bridging the gap is simple … just save more. So, what’s stopping us?

Well, we’re human. This misunderstanding of our risk is commonplace regardless of, say, wealth and education. While a client with a financial adviser will likely be saving more appropriately because they have the help of a professional - most people’s natural mindset is to under estimate the risks to their future of actions taken today. For those who don’t have access to a financial adviser - the majority of the population - they are likely to be stuck to a financial path that’s never rectified.


A simple plan

Back in 2005, The Pension Commission concluded there were three possible answers to solving the impending pensions crisis – save more, work longer or retire with less. None of these, on their own, were popular, suggesting that a combination of all three was a likely outcome for most savers. By presenting the future consequences of our savings habits, The Pension Commission was no doubt hoping to encourage people to adopt a better savings ethic. Unless we save more, we will need to work for longer and/or retire with less. That seems a simple statement.

The results, however, from over 6,000 people who have completed the Your Vitality Future Calculator highlight the lack of understanding we have about our retirement and the impact decisions made today will have on the life we lead tomorrow. We’re not saving enough. But we still want to retire earlier than we can afford. On average, 63 is our preferred age –  with the level of savings (accrued and ongoing) reported by people using the Calculator, this results in a savings gap of 9.8 years for men and a staggering 16 years for women¹. But we’re not willing to accept the drop in income and change of lifestyle our current financial choices are dictating.

So, what do we do about it?


Short-term views, long-term goals

One of the prevalent themes of behavioural economics is heuristics² which shows we make 95% of our decisions based on short-cuts, focusing on the most immediate and relevant aspect of what is often a complex problem. In doing so, we tend to take a more short-term view, tackling immediate needs over long-term goals. It is, therefore, understandable why we find it difficult to visualise what is wanted, or needed, in retirement and even more so, how to get there.

And saving for retirement is regarded, by many, as complex. Procrastination is rife – it’s too far away – it’s too close – the pot is too small – the choices too great. And with our inbuilt need to make the right decision, we end up doing nothing.

That’s where providers and advisers need to work together to help make it simple for us to save … and save enough…and consistently…to provide the individual retirement we’re all hoping for. Putting money aside may not be difficult but knowing how much, how often and where to put it can be.

What worries us is whether the decisions we’re making now are going to be right for the future. They can be, by having a plan that doesn’t just work in the good times, but flexes and adjusts to changing circumstances.


A 21st century solution

VitalityInvest has created a new way of investing for the future that rewards saving sooner and for longer, taking account of what’s happening now. We’re providing choices to manage both the accumulation and drawdown stages of saving, allowing the flexibility to adjust the plan as life changes. We are encouraging people to engage more in their savings journey by empowering them to reduce their costs as they adopt healthier lifestyles. 

And we’re providing support to maintain both health and wealth throughout working life, setting the foundation for a retirement that can be enjoyed. We are the only pensions and savings provider that’s using a new and scientific approach to incentivising investors to make better choices using methods that have already proved successful in Vitality's health and life insurance products.

Breaking down these decisions into bite-size pieces and helping to visualise the future in a meaningful and practical way accommodates being human rather than fights it. It allows us to think about the immediate, while planning for the future. It allows us to define our current financial priorities, while making more informed decisions about our financial future. And it will allow us to believe we’re making the right decisions every time. One step at a time.

It allows us to be human.


1. The retirement savings gap is defined by Vitality as the difference between a person’s life expectancy at retirement and the number of years’ income that their savings can support.


VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.
22/08/2019 | This article’s view is based on the law, practices and conditions as at the day of publication. While we have made every effort to ensure they are accurate, we accept no responsibility for our interpretation or any future changes. | VI O 0063