Irish pensions gap at €20bn per year

The average Irish person needs to save an additional €9,100 per year or face a seriously reduced standard of living on retirement, a new study said today.

Ireland's pensions savings gap - the difference between expectations for retirement and what is actually being saved - currently stands at about €20 billion per year, the survey by insurer Aviva found.

The estimates are based on a calculation of the savings that would be required for those currently in employment to retire on 70 per cent of their final salary.

At age 20, workers are facing an average gap of €1,700 per year. This rises to €21,100 for people aged 60.

Overall, Europe's workers have put aside €1.9 trillion less than they need to fund their retirement.

The largest savings gap was seen in the UK, where the deficit is €12,300 per person, followed by Germany with €11,600.

Aviva said that without increased saving, workers will be forced to pay for their old age by selling their homes, putting off retirement, or "accepting a significantly reduced standard of living".

"Already, some countries across Europe are expecting to see the number of people working beyond retirement age double in the next 10 years," Aviva said. "Increasing the retirement age would help reduce the pensions gap but it will not solve the problem on its own."

The company's figures estimate that by 2051, about half of the current Irish population will have reached retirement age, rising threefold compared to the number of people over 65 today.

The insurer warned that this will put a further strain on the economy, with the number of people working to fund those in retirement declining from a ratio of six to one down to two to one.

The company has called for a number of measures to be introduced to help make people aware of the situation and to try to correct it. It is seeking a review of current pensions incentive schemes to see how effective they are, and to establish a European pensions savings target that is calculated as a percentage of each country's gross domestic product.

It recommended issuing annual pension statements to people to show their projected total pension, and said a European quality standard for pensions should be created to demonstrate the quality and security of products and increase consumer confidence.

"The need for prudent and long-term financial planning has never been more pertinent or more necessary," said Aviva chief executive Jim Dowdall.

“It’s time to do things differently and consider a partnership approach between government, stakeholders and the insurance industry with a shared objective to develop a stronger retirement savings culture that will help safeguard our collective financial future."

Additional reporting: Reuters