If figures suggest that less than half of the eligible workers among us have signed up for a pension plan, there must be a reason. Anecdotal evidence would suggest that two factors are at work: confusion and disinterest.
Commentators agree that the principal reason for delay when signing up for a pension, particularly a personal pension plan, of the personal variety, is that there is no obligation to do so. Even the conscientious 25-year-olds who put themselves under pressure to set up a pension plan have years, decades even, in which to decide on the best approach. Hence, they put it off.
Mr Tony Doyle, pensions development manager with Ark Life, contends that retirement provision is one of two major financial outlays that almost every person will have to make in their lifetime, the other being shelter, or buying a home. His problem is in convincing the 20-year-old masses out there that this is the case.
The problem, says Mr Doyle, is that pensions do not provide any short-term gratification, unlike a new home for example, which allows the new purchaser to run wild with the paint card and quickly admire the results. Pensions, on the other hand, are perceived as money sponges that lie dead for 30 or 40 years.
The comparison also falters in a situation where future loans can be granted on the strength of significant assets such as an apartment or house, yet a pension provides no such benefits. The possibility of changing this was considered by the Pensions Board a few years ago when it was preparing its National Pensions Policy Initiative report - the report that eventually led to the development of PRSAs. No such provision ended up in the Pensions (Amendment) Bill, 2001, the enabling legislation for the new pension model.
The secret face of pensions, however, is that they are extremely tax-efficient. Almost 40 per cent of the Ark Life survey respondents professed ignorance on tax relief in relation to regarding pensions. Whether or not this comes from a wider ignorance on what tax relief actually means is debatable, but it is significant. The fact is that most people receive full tax relief on pension contributions, with the amount of relief increasing as the candidate gets older.
In practice, this means that if the highest rate at which a person pays tax is 42 per cent, they will receive back (in the form of tax relief) 42 pence out of every £1 contributed. If an employer contributes to an employee's pension, the company will also receive tax relief on those contributions.
The result is that a pension will not cost as much as you might think. Now it's just a matter of making the words "tax" and "relief" sound exciting to the younger generation. Ideas, anyone?
