ABI Tool for advisers calculates extent of client's pension provision and any shortfall
The ABI has created a tool to help intermediaries illustrate the shortfall in a client's pension funding.
Launched last week, the paper-based Ready Reckoner can be used to show what individuals would get when they retire with different monthly levels of savings.
Richard Taylor, head of research at the ABI, said it would be targeted at those who are not currently saving to make them think about their retirement and encourage them to start saving or save more.
It shows that a man aged 30 saving £25 per month who retires at 55 will receive £24 per week. A woman aged 35 saving £100 per month who retires at 65 will receive £306 per week.
Research into the impact the Ready Reckoner would have was commissioned by the ABI. Market research agency Frank Research found that the idea was received positively by most of the respondents.
A spokesman for Frank Research said: 'The Ready Reckoner brought to life the general belief that it was important to start saving as early as possible for a pension.
However, for respondents over 35, the figures were particularly disappointing. They realised that they either needed to save significantly more or lower their expectations.'
This resource adds to other information that is available to those thinking about investing for retirement.
These include the projected retirement income figures that providers will display from April 2003.
However, Taylor argued that although information was available elsewhere, the new tool does fill a gap.
He said: 'Facilities like decision trees are available but these are only accessed by those who are already thinking about saving for a pension.
There is an opportunity to bring a pension Ready Reckoner to a wider audience of individuals who are currently not saving enough for a pension with the aim of prompting them into action.'
The tool takes account of contextual information to help people decide what a reasonable level of retirement income would be. The age of the individual is taken into account as is gender and the age they want to retire.
Information is also included on income that might be received in state pension when that becomes available, currently at 65.
A full basic state pension is assumed and a Serps/State Second Pension is added, based on a hypothetical case where the individual earns £15,000 per year.
Advisers will be able to use the Ready Reckoner to highlight what their clients' costs in retirement might be. It puts forward questions about a pensioner's potential outgoings.
It points out that prices may rise substantially while individuals are in retirement so that their spending power may be eroded and the document assumes an inflation level of 2.5%.
There are four versions of Ready Reckoners for men and four for women.
Each one is based on a different set of variables chosen by individuals so people can get results tailored to their circumstances.
In the example table shown above, the amount where the selected contribution level and retirement age meet is a broad estimate of the amount of money an investor might expect to receive from a stakeholder pension.
This is based on calculations where the investors make monthly contributions increasing as their earnings increase.
Details of the Ready Reckoner are available at www.abi.orgw.uk and cost £35.
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