A failure by the next government to properly address pension policy would drag the percentage of adults who are financially prepared for retirement from over 70% to under 50%, Irish Life has said.
The country’s leading life investment and pensions company yesterday published results of a major study into customer attitudes towards retirement and people’s financial readiness.
The study was undertaken by market research company Behaviour & Attitudes and management consultancy McKinsey.
Not having enough money to retire comfortably has overtaken concern about meeting debt obligations as the number one household financial worry, according to the data, while 30% of working adults plan to work for as long as they are able rather than retiring.
That figure increases to 40% for people aged over 50.
The data also showed that Ireland’s poverty rate in retirement — 6.9% — is lower than most large OECD countries.
“Poverty is not the issue; the question of the State pension is,” said Irish Life chief executive Bill Kyle.
“If the Government doesn’t address the pension crisis, the retirement readiness index will drop from 71% to below 50%.
"The State pension is viewed by Irish people as a critical foundation. If Government doesn’t take care of it, the whole system is at risk,” he added.
Mr Kyle said the current pension system is not sustainable, although its general design only needs some careful adjustments.
Workers saving more and system sustainability are the main issues in need of addressing, he said.
To that end, Irish Life has suggested increased contributions and reduced future benefits from pension schemes are needed to eliminate future deficits.
“The State pension is unsustainable; before recent eligibility changes, the deficit was projected to stand at 35% of benefits in 2035 and there is a similar sustainability challenge with public sector pensions,” the company said in its presentation.
The company said realistically up to about 66% of the working population can be either expected to sign up to a pension scheme.
Anything over that figure is virtually a pipe-dream.
With that in mind, Irish Life is suggesting a shift in legislation.
Currently, employers can force new workers to join schemes but, under legislation, cannot compel existing employees to join.
“Legislation could be introduced to allow employers ‘auto-enrol’ existing employees.
"Similar ‘safe harbour’ legislation has been introduced in other countries including Britain, Australia and the US,” Irish Life said.
Mr Kyle said finding a solution to the sustainability challenges facing both the State and public sector pensions must be made a top priority, “as this will have an impact on the needs for pension coverage and additional personal savings”.
“Of most concern was the unsustainability of the State pension which, if not addressed, could result in 52% of households not being on track for retirement, compared to the 29% currently at risk,” he said.
“Most of these households not on track for retirement are in the mid-to-high income group and do not participate in a pension plan.
A surprisingly high number (22%) of mid-to-high income households will also carry mortgage debt into retirement,” said to Mr Kyle.
Those respondents interviewed on retirement worries were most concerned about the cost of care in later life, not having saved enough, the risk of inflation affecting their quality of life and the risk of outliving their retirement savings.
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