With access to Sky Movies and Netflix, I have now officially viewed 95% of the films ever made. Last Sunday I found myself watching “What’s your number?” with Anna Farris (of Scary Movie fame) and Chris Evans (Captain America himself). Whilst strangely not pension themed, I did find myself discussing the question in another context when considering Defined Contribution contributions (as well as wondering why I don’t get out more). Also, the less said about the movie plot the better….
The question posed was how important is it to get members up to the 15% contributions required to have a comfortable retirement? These type of studies I find quite frustrating. This 15% myth has been around for about a decade now, and whilst I don’t doubt it comes with some scientific basis – I don’t think putting a flat number on it really helps members. These figures are based on a set of assumptions on numerous factors, some of which are in the individuals control. This should not be a one size fits all process.
The question posed to members should not be how are you going to get to 15% contributions, but what is your number? The member must assess alternative forms of wealth, current pension provision and their likely spending in retirement to make an informed decision on the amount to put in to the Scheme. This decision should be refreshed on a regular basis, to make sure that the key variables have not changed.
There are many people who would be extremely disappointed by the culmination of 15% contributions, there would be some fairly happy with what 10% per annum brought them. It is a personal choice based on aims, expectations (with some investment risk thrown in) and the ability to pay.
The real key should be to get people to engage with the systems and take the pressure of the minimums and the defaults. If we up the minimums we will just alienate a huge sub section of the populous. The more painful the contribution becomes, the higher the opt out rate. I think that is an accepted fact. Therefore compulsion seems self defeating. Educating and giving the masses access to the modelling tools to make informed decisions seems to be the way forward.
So, if your numbers 8, 15, 20 or 35 don’t be ashamed, just be comfortable that you have made the informed decision and are funding accordingly. Watch the performance, review the decisions and enjoy a happy retirement.