Irish Economy
Irish Pensions: 50% of all 35-45-year-olds have no occupational pension
By Michael Hennigan, Finfacts founder and editor
Nov 25, 2014 - 6:51 AM

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The number in employment at end of 2013 was 1.9m

Irish Pensions: 50% of all 35 to 45-year-olds have no occupational retirement provision beyond the state pension according to an analysis of 5,000 defined contribution (DC - where there is no guaranteed payout) pension plan members by Mercer, the pension consultants. Based on current savings levels, it is also projected that 35 to 45-year-old DC pension plan members can expect an average income in retirement of just 22% of final salary.

According to John Mercer, DC specialist, Mercer, “The squeezed middle is facing a perfect storm when it comes to retirement. Existing private pension saving is inadequate, reliance on the state pension is not an option and they are facing higher levels of debt than previous generations when they come to retire.” He added “Given that the average 40-year-old is expected to live up to 28 years in retirement, it is essential that there is a renewed focus on retirement saving to avoid increasing levels of poverty for people in retirement.”

During the recent financial turmoil, 35 to 45-year-olds struggled through the effects of falling disposable incomes, rising costs and high levels of personal debt. As a result, 50% of all 35 to 45-year-olds have no private provision for retirement. In addition, only 14% of DC plan members are making additional voluntary contributions beyond the minimum required.

Mercer’s analysis also illustrates that Ireland’s national debt, ageing population and increasing life expectancy mean that future generations cannot expect to receive the state pension in its current form when they come to retire. The figures speak for themselves. The ratio of workers to pensioners is set to fall from 5:1 today to 2:1 by 2060.

According to Mercer “a 40-year-old earning €45,000 pa could increase their pension fund at retirement by an estimated €118,000 by saving an additional 5% of salary per annum.” He added, “Tax incentives mean that for a higher rate tax payer, the real cost of each €100 invested in a pension plan is just €59. This makes pensions an extremely tax-efficient savings vehicle.”

For today’s 35 to 45-year-olds, retirement may still seem like a long time away, but according to John Mercer, “The challenge for us all is staying one step ahead in planning for our future.”

However pension fund fees are a big racket and two years ago this month Joan Burton, minister of social protection, received a report on pension charges that she had commissioned PricewaterhouseCoopers to prepare.

The report provides the following example. If an individual age 35 saves €250 per month for a pension for 30 years, a fund of approximately €200,000 is created which results in a pension of about €10,000 per annum. Apply the average charge of 2.18% per annum to this fund and the final fund is reduced by 31% i.e. the fund is reduced by €62,000, resulting in a lower pension of €6,900 per annum. This impact would be significantly higher where the maximum charges apply.


Irish pension managed funds had mixed performance in October

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