A summary of:

Steps Towards a “Living Pension”A practical guide to improving outcomes for defined contribution pension scheme members

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1 The story so far…

2 What is a living pension?

3 Are people on track for the retirement they want?

4 Making up the distance to achieve better outcomes

5 A living pension toolkit for employers

What the full report covers

Why read this report?

■■■Because automatic enrolment is a significant step along the way to helping

people achieve the lifestyle they hope for in retirement — but in itself it is not

enough

■■■Because only by understanding how people of different generations think

and feel about the long-term future can employers, trustees and government

successfully engage individuals and help them achieve better outcomes

■■ Because it does not just diagnose the problem; it highlights simple,

pragmatic steps that can be taken to help people achieve the lifestyle they

want in later life — and to ensure that both employer and employees get

value out of their contributions to DC schemes.

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As the industry and plan participants work hard to both absorb and implement the full and far-reaching consequences of recent and ongoing change, there are still fundamental questions that remain. What do people actually want from later life, and what, in their words, does a good outcome look like? How are they planning for it? Are they being supported, and if not what help do they need to manage better?

Claims are often made about the pension gap, painting an ominous picture of the chasm that exists between retirement expectations and reality. But these estimates do not always start with talking to pension scheme members themselves. In this report we set out to answer the above questions and provide a refreshing, alternative perspective on the issues — from the members’ point of view.

In one of the most comprehensive studies ever carried out with defined contribution (DC) scheme members in the UK, we talked to the three main generations in today’s workforce, using both face-to-face interviews and a national survey, to gain depth and breadth in understanding retirement hopes and dreams, and the steps people are taking towards them.

We also explored people’s responses to the announcements about retirement choices made in the UK’s 2014 spring budget.

Almost without exception, the people we spoke to had pragmatic and realistic expectations for later life. And while there is certainly more work to be done to help them achieve their goals, there are some simple and practical ways in which we can help. In suggesting these solutions, we have used our behavioural finance expertise to examine the psychology behind financial decision-making and how this could be used to support and encourage members to save for later life through different nudges and interventions.

Our intention is that the insights in this report, and the solutions it explores, offer a critical next step towards helping people achieve their retirement ambitions.

Lydia Fearn, Head of DC Investment Consulting, Barclays Corporate & Employer Solutions

Overview of the report

“I would like to be healthy enough to retire and have enough finances to look after myself, the wife, the family and the grandchildren, nothing more, nothing less really, just to be nice and comfortable.” [Baby Boomer]

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63%

Required contribution to achieve a living pension (taking into account the income they can expect to get from the state pension)

£23,400

£29,000

£27,600

8%7%

9%

For someone starting at age 22 today, this rises to 13%

1. Save or invest money in an ISA (68%)2. Increase amount of money paid into DC pension plan (49%)3. Buy another property or properties to sell or rent out (32%) 4. Invest money in stocks and shares or bonds (31%)5. Continue working past state pension age (30%)

1. Save or invest money in an ISA (60%)2. Increase amount of money paid into DC pension plan (43%)3. Continue working past state pension age (34%)4. Invest money in stocks and shares or bonds (31%)5. Put money from an inheritance towards retirement (25%)

1. Save or invest money in an ISA (65%)2. Continue working past state pension Age (47%)3. Invest money in stocks and shares or bonds (35%)4. Increase amount of money paid into DC pension plan (33%)5. Move to a smaller or less expensive home (30%)

12% 11 21

£18,500£17,400£17,400 79%60%

Baby Boomer (age 54-69)

(age 34-53)

(age 19-33)

Generation X

Generation Y

Other actions taken or planned to increase money in retirement

£190£50£50per month per monthper month

Y X B

Current average annual salary

Proportion of current income needed for “must have” later lifestyle (implied replacement ratio)

Annual income needed for the “must have” later lifestyle they describe29

Average contribution now from self and employer

Amount of money it would take to make up the difference (on average from the 8% auto enrolment default rate)

0

10

20

30

40

50

60

70

80

* auto enrolment will mean employers contribute 3%, so Generation Y employees should contribute 7.2% and then the last 1.8% is from tax relief to get to a 12% contribution rate (for a basic rate tax payer)

* auto enrolment will mean employers contribute 3%, so Generation X employees should contribute 6.4% and then the last 1.6% is from tax relief to get to a 11% contribution rate (for a basic rate tax payer)

* Baby boomers (age taken as 59) have only seven years until retirement so additional contributions make very little difference to their end pension incomes. They would need to contribute 62% to get on track (for a basic rate tax payer). But if they worked for five extra years that goes down to 21%.

+ 5 years

* * *Baby BoomerGeneration XGeneration Y

%%

How on track for retirement are the UK workforce generations?

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63%

Required contribution to achieve a living pension (taking into account the income they can expect to get from the state pension)

£23,400

£29,000

£27,600

8%7%

9%

For someone starting at age 22 today, this rises to 13%

1. Save or invest money in an ISA (68%)2. Increase amount of money paid into DC pension plan (49%)3. Buy another property or properties to sell or rent out (32%) 4. Invest money in stocks and shares or bonds (31%)5. Continue working past state pension age (30%)

1. Save or invest money in an ISA (60%)2. Increase amount of money paid into DC pension plan (43%)3. Continue working past state pension age (34%)4. Invest money in stocks and shares or bonds (31%)5. Put money from an inheritance towards retirement (25%)

1. Save or invest money in an ISA (65%)2. Continue working past state pension Age (47%)3. Invest money in stocks and shares or bonds (35%)4. Increase amount of money paid into DC pension plan (33%)5. Move to a smaller or less expensive home (30%)

12% 11 21

£18,500£17,400£17,400 79%60%Baby Boomer

(age 54-69)

(age 34-53)

(age 19-33)

Generation X

Generation Y

Other actions taken or planned to increase money in retirement

£190£50£50per month per monthper month

Y X B

Current average annual salary

Proportion of current income needed for “must have” later lifestyle (implied replacement ratio)

Annual income needed for the “must have” later lifestyle they describe29

Average contribution now from self and employer

Amount of money it would take to make up the difference (on average from the 8% auto enrolment default rate)

0

10

20

30

40

50

60

70

80

* auto enrolment will mean employers contribute 3%, so Generation Y employees should contribute 7.2% and then the last 1.8% is from tax relief to get to a 12% contribution rate (for a basic rate tax payer)

* auto enrolment will mean employers contribute 3%, so Generation X employees should contribute 6.4% and then the last 1.6% is from tax relief to get to a 11% contribution rate (for a basic rate tax payer)

* Baby boomers (age taken as 59) have only seven years until retirement so additional contributions make very little difference to their end pension incomes. They would need to contribute 62% to get on track (for a basic rate tax payer). But if they worked for five extra years that goes down to 21%.

+ 5 years

* * *Baby BoomerGeneration XGeneration Y

%%

How on track for retirement are the UK workforce generations?

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Here we suggest a number of steps, all of which Barclays Corporate & Employer Solutions can help you with.

We understand that it is not just individuals that feel under pressure. Automatic enrolment has significant cost and time implications for employers. This toolkit outlines different levels of support that employers could provide for their employees. While some employers may be able to complete all four stages, we understand that for others, achieving just stage 1, or stage 1 and 2 may be more realistic.

A toolkit for a living pension for your workforce

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Three steps towards a living pension

It is clear that helping people to achieve better outcomes from their DC pension in order to achieve the lifestyle they want in later life will require action from the individual themselves, from the government, from employers, and from all the other parties involved in the DC landscape, including trustees, pension providers and financial advisors.

So why should we bother? The financial benefits for individuals in later life are paramount, but the benefits are emotional as well as financial — knowing there is a sufficient plan in place reduces anxiety and stress and gives people peace of mind throughout their working life.

As an employer, providing support to your employees is important for the psychological contract between them and you — with the potential to boost loyalty, morale and motivation, ensuring you get good value out of the investment you make in pension provision.

And for government the case is clear: Financially insecure populations are in no-one’s interests. Better outcomes for DC members mean better outcomes for us all; they are part of a sustainable economy.

A toolkit for a living pension for your workforce

Legal noteWhile every effort has been taken to verify the accuracy of this information, neither The Futures Company, Ipsos MORI nor Barclays can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report. This document is intended solely for informational purposes, and is not intended to be a solicitation or offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or to provide any investment advice or service.

This item can be provided in Braille, large print or audio by calling: +44(0)1624 684 444* (or via TextDirect if appropriate).

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Call costs may vary – please check with your telecoms provider. Calls may be recorded so that we can monitor the quality of our service and for security purposes. “Barclays” refers to any company in the Barclays PLC group of companies.

Barclays Bank PLC is registered in England and authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP.

© Barclays June 2014 All rights reserved.

Item Ref: IBIM3483 July 2014

The full report, Steps Towards a “Living Pension” is available from Barclays:

Lydia Fearn lydia.fearn@barclays.com Tel + 44 (0)20 3555 8330