Irish pension savers take on more risk than UK peers

Pension funds have to fall by 20% before Irish savers take action survey shows; Irish people aren’t maximising tax relief on pensions

Almost one in five Irish pension savers wouldn’t alter their investment portfolio until its value dropped by 20 per cent, a survey of Irish defined contribution (DC) members has found. This compares with a 10 per cent level at which UK savers would take action, indicating that Irish pension savers are more reluctant to engage with their pension than their UK peers.

The survey, from State Street Global Advisors, also shows that Irish pension savers are the least confident that they'll meet their retirement goals, with just 15 per cent expecting to do so. By comparison, almost one in three UK participants were confident about their retirement goals.

Overall, the survey points to uncertainty concerning when to retire. Though a target date appears to crystallise after age 50, 28 per cent of Irish workers are still unsure over the age of 60 as to when they’ll retire. In addition, when they do retire, 62 per cent of Irish respondents are extremely/somewhat likely to have to work part-time, many for as long as they can. In the UK, 67 per cent of the sample indicatied that it is likely that they will work to some extent post-retirement, while more than half of those (55%) said they will work as long as they are able.

Nigel Aston, managing director and head of UK DC at SSGA, said the survey reveals “a fundamental shift” in the mindset of savers.


“It showed that both retirement age and sources of retirement income are becoming much more flexible. The survey suggests that half of members’ DC assets will remain invested after retirement, rather than annuitised or spent. This suggests that UK workplace savers may move more towards the sorts of behaviours seen in mature DC markets like the US,” he said.

In the overall survey, respondents on average said they would allocate 36 per cent of their pension fund to purchasing an annuity, with 33 per cent taken as a cash lump sum, and 31 per cent retained in the pension plan to draw down over time. A majority (57%) of people said any cash lump sum they took would mainly be saved or invested rather than spent or used to pay down debt.

Tax relief

Meanwhile, a survey from Standard Life has found that up to 70 per cent of working adults, or more than one million people, may be missing out on tax breaks worth up to almost € 20,000 per year (based on earnings of €115,000). According to the survey, almost three out of ten people (28%) think pensions are not tax efficient, while a further 42 per cent said they didn't know.

”Ignorance is not bliss,” said Aileen Power, a Standard Life spokeswoman. “It’s awful to think so many are missing out on valuable tax breaks and not building up a nice nest egg that will deliver them a comfortable retirement”.

Power argues that considerable damage was done in 2010 and 2011 when the government was threatening to halve income tax relief on pension contributions. “What this survey suggests is that many people don’t realise that pensions tax relief was never cut and/or they don’t understand just how good the tax breaks on pension contributions are,” she said.

Standard rate taxpayers receive a 20 per cent tax break while those earning € 32,800 or more a year are entitled to 41 per cent tax relief.

Fiona Reddan

Fiona Reddan

Fiona Reddan is a writer specialising in personal finance and is the Home & Design Editor of The Irish Times