300,000 workers face pension shortfalls

MORE than 300,000 workers face pension shortfalls unless they double their contributions, the Irish Association of Pension Funds (IPAF) has warned.

Almost 50% of private sector workers will retire on far less than two-thirds of their basic salary. This is the main finding of a report to be published shortly by the IPAF.

To ensure full pensions, 300,000 workers need to nearly double their contributions, IPAF president John Feely warned yesterday.

The group's survey confirms fears that pension shortfalls are likely to be a major problem in Ireland in the near future.

Up to 60% of those in the private sector do not have a retirement plan, while half of those who have a plan are not adequately covered, Mr Feely said.

The news follows calls in Britain for pension funds to carry a "health warning" to unsuspecting investors that the pension products they take out may not deliver what they promise. This is becoming an increasingly difficult problem in the wake of the stock market crash and low interest rates.

Mr Feely rejects the suggestion that Irish pension products should carry a health warning. "That's too negative a move," he said.

However, he said workers had to realise the amount they are setting aside is totally inadequate to meet their expectations on retirement.

On average, workers on defined contribution plans are paying just 10% of their salary into pension plans. That figure includes employer contributions, where they are made.

IAPF estimates that for a pension to deliver two-thirds of basic salary in today's more depressed market individuals need to invest between 15% and 18% of their salaries.

Those conclusions are supported by a recent paper published by the Society of Actuaries in Ireland. It warned "in many instances contributions are inadequate" and that "many new defined contribution plans are established with contribution rates lower than the defined benefit schemes they replace".

Traditionally, defined benefit plans guaranteed the amount workers get when they retire which was two-thirds of basic salary when the old-age pension is included in the package.

But as the move away from the more expensive defined benefit plans continues, the reality is "workers are not going to get a retirement income in terms of what their expectations are".