Half of Irish adults under the age of 45 have no pension or savings in place to provide for their retirement according to research by New Ireland Assurance.
More than a third of those aged between 35 and 44 do not know how they will fund their lifestyle in retirement, the research found - - it has not yet been updated on the company website.
The collapse in equity prices and pension fund values has blown away any confidence people have in investing generally.
The insurance company says a plunge in disposable income due to the economic slump is also making people think twice before putting money into a pension.
New Ireland says that even saving as little as €2 per day, a worker could build up a fund of €126,000 for retirement.
This is based on a 25 year old, with a salary of €30,000, investing €60 a month into a fund that grows at 6% a year.
It is not a simple as that and an average return of 6% over almost 40 years maybe realistic or not.
There is a huge gulf in Irish society with public sector pensions linked with salary increases including productivity payments, while the majority of Irish private sector workers do not even have a basic occupational pension scheme.
The Irish Association of Pension Funds (IAPF) said in its 2008 response to the Government Green Paper on pensions, that the introduction of mandatory or soft mandatory pensions has the potential to undermine the existing system and “cause havoc” for private sector workers.
However, Lord Adair Turner, who headed a UK commission on pensions, said in Dublin in 2006, that a purely voluntary system would not work.
Turner is now the respected head of the UK financial regulator, the Financial Services Authority (FSA),
The more than 1 million private sector workers without occupational pensions contrasts with the exceptional system available for politicians and public sector staff.
Removing barriers rather than imposing compulsion is the best way to address the pensions crisis according to the IAPF.
“We believe the best approach is to increase the number of people with good pensions using simple and proven incentives while ensuring that the Social Welfare Pension is sustainable and delivers a basic standard of living to all,” commented Patrick Burke, chairman, IAPF.
The IAPF said that the introduction of mandatory or soft mandatory pensions has the potential to undermine the existing system and“cause havoc” for private sector workers. “Consumers are already obliged to make mandatory contributions under the State pension scheme,” commented Burke. “The big danger is that an additional mandatory system would set a benchmark below current levels in terms of contributions and benefits.”
Lord Turner who wasn't part of a vested interest, said in Dublin in October 2006 that his Commission on Pensions in the UK had recommended a system which would automatically enrol employees in a pension from the time they began working unless they themselves choose to opt out of the scheme. This was necessary, he argued, because “a purely voluntary system was not going to work….employers won’t provide adequate pensions for employees and individuals won’t go out and buy pensions themselves.”
It's a debate that is similar to heath care coverage in the US and in Ireland, the Celtic Tiger has come and gone and private sector workers did not have the collective power to get the attention of politicians during the good times.
“Fundamental pension reform can no longer be put on the back burner,” Sinead Pentony, Head of Policy at the think-tank TASC said today.
Pentony said the New Ireland research findings were similar to a TASC / Behaviour & Attitudes survey released earlier this year, which found that just 50% of those in employment had a pension - - significantly below the Government target of 70%.
“As well as being inequitable (disproportionately benefitting those higher up the income scale) and inefficient (having singularly failed to achieve their objective of increasing pension coverage), TASC demonstrated last year that the cost of tax reliefs was set to outstrip the cost of the public pension system,” Pentony said.
“The ‘tax incentive’ approach to increasing coverage is a costly failure. A slightly different version of the same approach – as suggested in the revised Programme for Government - - is also likely to fail.
“The time has come for the Government to grasp the nettle of fundamental pension reform. A significant proportion of Irish workers could face an impoverished retirement unless the current system of tax-incentivised private pension provision is replaced by a state-led system comprising an increased and universalised State pension combined with a Social Insurance earnings-related ‘second-tier’ pension,” Pentony said.
Finfacts report Feb 2009: Lenihan says total cost of State pension for an Irish public sector worker hired after 2004 is 26.1% of pay
