Pensions - Articles - Target cost of living rather than pension pot size

 The firm argues that the targets are an opportunity to establish a new benchmark for DC provision, and it recommends two key principles which should be incorporated into their design:

 1. Target the cost of living rather than income: Ultimately, pensions savings should provide for the cost of living in retirement. Therefore, it is this expenditure figure that should be targeted rather than income;

 2. Keep the targets simple and relevant: There are a number of material influences on peoples’ cost of living (for example: single or joint occupancy household; property owner or renter; place of residence; and standard of living).

 These influences can be effectively captured in a way that doesn’t result in a proliferation of targets. Cardano proposes an approach that results in five target levels.

 These targets would not only be a relevant yard stick for savers and trustees/IGCs, but also for DC providers. The success of DC strategies should be benchmarked relative to cost of living targets and not in relation to the size of the pot.

 Ralph Frank, Co-Head of Cardano’s DC business, said: “The PLSA’s consultation is a huge step in the right direction and will help to make retirement planning more understandable. However, we propose targeting the cost of living in retirement rather than income.

 “Savers need to ensure that their expenditure in retirement is covered, so benchmarking DC plans in this way makes perfect sense. But it’s also important to understand the nuances of this measure – a couple renting their home in London and just about managing may have the same cost of living as a homeowner in Bradford who is living a comfortable lifestyle.

 “By putting in place simple measures to help savers identify a relevant target based on their circumstance and making this target easily understandable, we believe that engagement and decision-making in UK DC could be changed for the better.”