Savings & Investing

Delivering consolidated lifetime savings accounts

Dec 12, 2016
By Ben Franklin

The creation of consolidated lifetime savings accounts to facilitate cradle to grave financial planning and to support the sustainability of pensions systems and adult social care. To make this happen, pensions systems would shift from pay as you go to notional defined contribution with a proportion of savings contributing to a long term care insurance fund. In addition, individuals could view all of their savings, private and state, pension and non-pension through a single online planning tool which, based on inputs from the individual, would estimate future potential income streams in old age.

There is a multifaceted challenge facing pensions systems and later life funding around the world:

  1. The long term sustainability of pension systems and adult social care,
  2. The subsequent difficulty for today’s pre-retirees to have any confidence over lifetime incomes allied to the complexity of savings options makes retirement planning impossible,
  3. The retirement cliff-edge caused by universal State Pension ages and few obvious incentives to continue working.

Proposed solution/action

Shifting to notional DC with a long term care insurance element could increase the sustainability of pensions and support long term care. Together with an online planning tool which would aggregate total savings and estimate income streams based on expectations of retirement, asset returns and life expectancy, this would make holistic long term financial planning more manageable and understandable. As part of the online tool, people would be able to explore how working longer, raising contribution rates or taking more investment risk could affect future income streams allowing them to better anticipate, and plan for, decisions over their lifetime.

Key implementation steps

Implementation would be tough, dependent on a number of steps – none of which are trivial. First there would need to be considerable political will and changes to legislation to move from a PAYG system to notional DC. Second, government and providers would need to consider how they would manage investment and longevity risk over the long run in order to limit the volatility of income outcomes in later life that could result from notional DC. Third, building a new online portal where all forms of savings are presented as part of a simple online dashboard would require substantial collaboration between providers, governments and specialists in online technology and then continual data management. It will require careful planning to ensure individuals’ personal data are not used inappropriately. In all, it would be a big challenge, but notional DC is already in place in some countries, while new innovative online tools to help with financial planning are being created on a regular basis.

Delivering consolidated lifetime savings accounts

Hear from Ben Franklin about the creation of consolidated lifetime savings accounts to facilitate cradle to grave financial planning.

About the author 

Ben Franklin
Head of Economics of an Ageing Society, International Longevity Centre

Ben Franklin is Head of Economics of an Ageing Society at the ILC-UK with a deep interest in the social and economic effects of population change. Since joining the organisation in December 2013, Franklin has been lead author on numerous reports related to pensions and savings, longer working lives, the adult social care workforce and more. His research has gained significant national media publicity as well as helping to shape public policy. Franklin has spoken at many high profile events and conferences, most notably at the launch of the Missing Million report with the Prince of Wales.

Prior to ILC-UK, Franklin worked as an Associate for the Financial Conduct Authority (FCA) where he undertook economic analysis in order to support the organisation’s shift to a more forward looking approach to regulating the financial services industry. This included drafting detailed internal notes on the UK’s economic outlook, UK regional risk hotspots, profitability challenges facing firms and sectors and analysis of economic forecasts.