Housing costs, inflation and confusion about pensions thwarting retirement planning

The cost-of-living crisis, the high cost of housing and the complicated nature of pensions are all leading people to “leave money on the table” by not investing in their futures, industry experts have warned.

Research from the Competition and Consumer Protection Commission (CCPC) published on Monday showed that the number of people in their mid-40s and 50s with a private pension has fallen significantly since last year with “concerning gaps” in retirement planning clearly evident.

“The cost of living is really putting a squeeze on but while that is a big issue, it is also true to say that it is a complicated topic,” said Jaqueline Thornton from Insurance Ireland. “If we manage to streamline legislative and regulatory requirements we can explain things easier.”

She pointed to members who say they would love to reach a younger cohort using social media channels such as TikTok and Instagram but said the bitesize information also has to come with “a 110-page document and they are expected to read that along with the videos”.

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She also noted that people view pension contributions as discretionary and something which can be parked when times are tough.

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“They might say I have to pay the heating this month and will go back to the pension in two months but then they have to pay the oil bill and then the heating breaks down or whatever.”

“It’s tricky getting that awareness out there and it is complex,” agreed Ciaran Hughes from Ethico, a pension planning company that helps people make ethical investments. “If someone turns off their pension for 10 years in the middle due to the cost-of-living crisis then the impact on their eventual pension is enormous.

He said housing was enormously challenging with “people at war basically over the price of a house and they use all of their resources to get the house in the best neighborhood they can afford and that leaves them with very little purchasing power to do anything else including pensions”.

He made the comparison between a person who puts €100 into a credit union and one who puts it into a company pension.

Tax relief and company contributions will see many pension investments treble almost instantly. “But that money is invested for 30 years with no tax on the growth and access to a tax free lump sum when the pension matures. The person who left the money on deposit will probably still have €100.”

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Eoin Kennedy from Aviva Life & Pensions said the current cost-of-living crisis is forcing people to make difficult choices. “Pensions sometimes get pushed down the priority list – which will create problems for society [and individuals] in later years.”

Pensions Awareness Week co-founder and head of financial advice at Moneycube Ralph Benson said the pensions research from the CCPC pointed to “a lot of confusion in the public mind when it comes to pensions” and he warned that as “new pension types are being introduced, the landscape is getting even more complicated”.

“Perhaps most worryingly, cash savings play a big part in retirement plans for people in Ireland,” he said.

The CCPC survey suggested that 57 per cent of people will be relying on cash in their retirement years compared with 45 per cent last year.