90% of workers not on track with their pension savings
Report says sector needs to make pensions more accessible and understandable
According to research, on average people start saving for retirement aged 37 – too late, Irish Life says. Photograph: Getty Images
A mixture of inertia and concern about affordability and control of their savings means people start saving for retirement later and then put less into their pension fund than is required if they want it to deliver a “reasonable target” pension in retirement, says Irish Life, one of the largest players in the Irish pensions management business.
In a report published Tuesday, it suggested that people should target a pension equivalent to a third of their salary when they retire.
“All over Ireland, people are facing retirement without the future they had hoped for,” said Tony Lawless, managing director of corporate business at Irish Life. “The pensions industry needs to make pensions more accessible and understandable, and not just offer complicated equations associated with grey-haired people walking along a beach.
“As an industry we need to get more people into plans and help them understand how much they need to save,” he said.
According to the Irish Life research, on average people start saving for retirement aged 37. That, the life group says, is too late.
It said the average member of a defined contribution pension plan in Ireland earned €51,250 and paid 11.4 per cent of their salary into their pension. That includes the amount contributed by employers.
If an employee, aged 25 and on a salary of €35,000, puts 5 per cent of that salary into a pension, with their employer contributing the same amount, they will have a pension pot of €462,830 at 65, Irish Life says.
That would provide annual pension income of €17,490 – on top of any State pension.
However, if you delay five years, with all other factors staying the same, the pension pot at 65 falls to €383,540 and the annual pension to €14,500. Put it off another five years, to 35, and the annual pension in retirement is down to €11,780 a year – and they have lost close to €21,000 in contributions that their employer was prepared to make on their behalf, Irish Life notes.
By the age of 40, the size of the likely pension pot has fallen dramatically – to €246,290 – and the potential annual pension has nearly halved to €9,310.
Irish Life presented the illustration by way of urging people not to wait for the introduction of mandatory pensions – the promised auto-enrolment regime. Although the Government has finally committed to the idea, it is not expected to come into force until 2022. And, if it operates like in Britain, contributions will start at a very low level so they do not scare people off and persuade them to opt out.
In the UK, mandatory contributions started at just 2 per cent – and that was the combined contribution of employee and employer. In April this year, that rose, but only to 5 per cent – still too low to build a realistic pension pot.