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What’s going to keep you warm in retirement?

What’s going to keep you warm in retirement?

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24th January 2019

I let out a small shiver when I read that the UK is at the start of a cold snap that could last for several weeks, with temperatures plunging to as low as -160 and snow due to hit the majority of UK towns[1].

It’s not that I hate wintry weather – our local park has a hill that my kids love to sledge down, and I was given a great hat, scarf & gloves set for Christmas!

I just fear the impact that it will have on the UK as a whole.  Pipes will freeze and burst.  Commuters will face delays on the roads and on trains. Businesses will lose out as their staff and supply lines are affected.  Illnesses and injuries linked to the cold will increase, with thousands of people affected and some even dying as a result.  And when everything does eventually thaw, flash floods could cause new issues all over again.

As a nation, we seem to be perennially underprepared for severe winters.  It can be tempting to just throw up our arms and say… ‘But what can you do?!’

In reality, we can all do something to mitigate the impact.  Homeowners and commuters can try to keep as warm as possible, and to properly assess conditions before venturing out.  Employers can consider allowing staff to change shifts, or work from home where possible.  We can all check up on friends and family who may be more adversely affected.

The problems may be caused by the severe weather, but they’re made much worse by lack of preparation (how many times do you see gritters out only after a heavy snowfall?).  Anything we can do to prepare in advance is a good thing.  And while guidelines are helpful, you’re the one who’s best placed to appreciate the particular problems that you yourself might face during a cold snap, and the specific preparations that will help you get through it.

It’s with this spirit in mind that I approach another doom-laden set of predictions.  The FCA recently announced that inadequate retirement incomes (or at least, incomes that are out of line with expectations) remain a central challenge for the UK[2].

Millions of DC pension scheme members may ultimately fail to save enough for retirement – particularly if they rely on the minimum contributions required by auto-enrolment as being sufficient to support them in retirement. (Most agree they won’t be.)  Savers are also struggling to engage with pensions, and general pensions understanding is low compared to other financial services products.  There is also an emerging gender gap when it comes to participation in saving for retirement.

But what can we do?”… …I hear you cry once more.  The answer to this is also familiar: actually, we can all do something to help improve our outcomes.

How this differs to a winter cold snap, however, is that most individuals – including DC pension scheme trustees, governance committees or sponsoring employers – have no direct experience of how they might be specifically affected by poor retirement outcomes, which means that they have little understansing of how best to cope with or minimise the impacts.

Thankfully, it’s not a question that has no answer.  I assisted in a groundbreaking study in late 2016, to measure the scale of the potential problem across the UK,[3] and Buck have been directly helping organisations and individual members in this area for a number of years.

Generally, one size never fits all, and it’s important to fully understand the DNA of your DC pension scheme before committing to any actions:  staff demographics can be analysed, engagement levels can be measured, projected retirement incomes can be modelled, gender gaps can be identified – and retirement outcomes can be improved.

Over time, wider movements should help too.  For instance, the Pension and Lifetime Savings Association, in coordination with Loughborough University, is also researching a set of national retirement income targets to help establish rules of thumb and assist with individuals’ plans for retirement[4].  Three different proposed retirement lifestyles (“minimum”, “modest” and “comfortable”) may help people better appreciate whether their approach to cold snaps in retirement will range from wearing warmer clothes around the house, to jetting off to Australia over winter.

Inadequate retirement incomes may be a part of the UK’s future, like severe annual cold spells.  But don’t lose hope: it doesn’t mean we’ll be locked into a permanent winter.  In the meantime, though, do what you can to understand how you might be affected and how to prepare accordingly.  And please wrap up warm!


[1] https://www.theguardian.com/uk-news/2019/jan/16/uk-weather-snow-ice-warnings-cold-snap-forecast-met-office
[2] https://www.fca.org.uk/publication/corporate/sector-views-january-2019.pdf
[3] https://www.plsa.co.uk/portals/0/Documents/0605-Retirement-income-adequacy-Generation-by-Generation.pdf
[4] https://www.plsa.co.uk/Policy-and-Research-Defined-Contribution-Hitting-the-target-project