Pension death date should add certainty to saving

News that pensioners could be given a ‘death estimate‘ – a rough guide to how long they are likely to live – to help them plan for retirement, has been dismissed by many this week as crass and misguided.

The estimate would take into account factors such as diet, lifestyle choices such as smoking and exercise, as well as longevity genes, wealth and geographical location (those in parts of Glasgow for instance, have the lowest life expectancy, while those in Harrow have the highest). While it is intended for those entering retirement, to help them best plan their saving and spending patterns, it could also benefit young people – particularly given that young people put off saving for a pension because they find it ‘confusing’.

A 2012 report by the CSFI think tank found that some young people believed that, while there was a degree of certainty in other savings – after all, it is easy to calculate how much you will need to save for a holiday, for example or a car or even a deposit for a house – where pensions were concerned, it became much more difficult, as there is no amount to save towards. In other words, when saving for most things, there is a fixed amount – or goal that you need to save – in mind, whereas, for pensions, it is a vague, open ended amount, and this vagueness discourages would-be savers.

Perhaps the proposed death date doesn’t go far enough – and young people should be encouraged from as early an age as possible to look at how long they might live, and accordingly, calculate from this how much they might need to save. Other studies of young people have indicated that they tend to wildly underestimate how much they think they will need to save in order to live comfortably in retirement. At least having some idea of how long they will live, and working out how much they would like to live on should give them a fixed number to save towards.

Either way, taking some of the uncertainty out of what, for many, is a distant point in the future, has to be a good thing for young people and retirement planning.

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