Pension savings at record levels but ‘DC schemes need to be improved’

The amount of money people are putting into their pension to save for their retirement reached record levels last year.

Fri, 13 Jun, 2014 - 01:00

Geoff Percival

According to a new survey from the Irish Association of Pension Funds (IAPF), pension savings grew by 14% — to a record level of €91.5bn — during 2013, compared to €80.5bn the previous year.

While Irish pension savings fell to €63.5bn at the end of 2008, they have grown by 44% since and last year’s record high beat the 2006 record of €87.7bn.

A strong performance across international equity markets accounted for much of the latest improvement and the recovery in investment markets should aid consumer confidence, the IAPF has stated.

However, the Association has also warned about the consequences of the increasing reliance on defined contribution (DC) pension schemes. It says a “significant” disparity exists between growth experienced by defined benefit (DB) savings (up by 15% last year) and those achieved by DC schemes (11.3% growth); mainly due to the lower cash element on the former.

“DC pensions will have an integral role in shaping our retirement landscape for many years to come — so they need our urgent attention,” IAPF chief executive, Jerry Moriarty said..

“What our report shows is that DC pension savers — of which there are over 500,000 in this country — are potentially losing out on thousands in retirement by leaving a high portion of their savings ‘invested’ in very low or negatively yielding. While savers have legitimate concerns about investment losses, leaving savings in cash over the long-term will erode the value of those savings as inflation will be greater than any return,” he said.

“Ultimately, if we are going to add to the DC system through auto-enrolment or mandatory pensions we need to get the existing system right first. The regulator and the sector need to come together to ensure that the DC system is secure, fair and simple and therefore is fit for the purpose of helping people provide for their retirement.”