Last July, the Mercer Master Trust, in partnership with retirement specialists, HUB Financial Solutions, launched Destination Retirement, a digital advice engine that helps people manage the complexity of establishing a long-term retirement income. It provides advice, initially and throughout the term of the customer’s retirement, and keeps costs at a level that the average person can afford. There is no initial fee.
To our knowledge, we are the first to introduce full-fat, digital retirement advice to the workplace pension market. And we are proud that we have done so.
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So how has it landed and what have we learned? Well, the number of sign-ups outstrips that of our previous retirement advice services by many hundreds of times. Clearly there is an appetite, and going through the process online, with access to support via phone, email, screen-share and webchat, appears not to phase people as some had predicted. Furthermore, the data we’re gathering on people’s situations, their wishes, their aspirations, and their financial position has been revealing. Here are some of our early findings.
Pension planning is not just about pensions:
- 55 per cent of pots being modelled are non-pension products
- Around one third of the assets being modelled are non-pension assets
Maybe we’ve got more money than we think we have:
- The median combined household income being recorded is £66,000
- The median asset value per case being modelled is £460,000
- The average household property equity is £479,000
How much income do people have secured already?
- The median state pension per household is £19K per annum
- The median defined benefit/final salary income per household is £15,000 per annum
- People also record other sources of income ranging from employment, to dividends, to annuity and rental income, the median of which is £9,600
How much income do people think they will need?
- Average household expenses are £34,000 with basic groceries and clothes accounting for the biggest item, and regular holidays coming in a fairly distant second
- On average people think they will need to cover one-off expenses amounting to £84,000. Clearing mortgage debt is the biggest one-off expense with provision for an emergency fund as the second priority
How much top-up defined contribution funds, and other funds, will you need to save to meet the PLSA Retirement Living Standards?
- Taking into account the state pension, for a couple to meet the moderate PLSA retirement living standard of £34,000 per annum, they would have need to have accumulated £348,000 between them
- To meet the comfortable standard of £54,500 per annum, that figure rises to £980,000
So what does all this add up to?
When you add everything together, income is covering average household expenses. But we’re still a way off fully replacing employed household incomes . Final salary income is still propping the system up. Without it, DC is going to really struggle to do the job of bridging the gap between state pension and basic household expenses.
Even allowing for the sample group who are early adopters, and likely to be more affluent than the eventual target market for this product, the aggregated value of assets modelled is surprisingly high at £460,000. Viewing things together, taking the holistic, household approach, presents a more hopeful and optimistic prospect than viewing pensions in isolation
For future retirees with little or no DB benefits, the ability to orchestrate a complex interplay of different assets and incomes, whilst balancing considerations of tax, product, investment volatility and returns, sequencing risk, longevity expectations and a host of other variables, will be essential. It can be done, but it’s very hard to figure out and easy to mess-up. More people will need the help of clever maths and algorithms to help them do this successfully
If you aspire to the PLSA comfortable living standard of £54,500 per annum, you’re going to need to be able to put your hands on just short of £1m, whether that’s pension or some other source of wealth. One to think about!