Workers told put a sixth of wages in pension

WORKERS starting a pension have been warned they need to contribute at least a sixth of their weekly wage if they want a pension worth two-thirds of their salary on retirement.

Speaking at a conference on pensions in Dublin, a number of experts also said that given the pension crisis in this country many people will be forced to continue working well into their retirement years.

A 30-year-old worker on a €40,000 salary will need to put €5,600 into their defined contribution (DC) scheme a year if they want to have a pension of €24,000 on retirement at 65 years of age.

This includes both the private and state pension. When tax relief of €156 is deducted each month, this will mean monthly payments of €310. If the scheme is started 10 years later when then worker is 40, then the monthly contributions soar to €524.

A stark warning was issued to pension holders yesterday, with experts claiming too many people have a false sense of security just because they make regular contributions to a scheme.

Chief executive of corporate business at Irish Life, David Harney, said pension holders are “complacent” and lack awareness on the actual value of their pension scheme and what it will buy in reality on retirement.

Also Social Protection Minister, Éamon O Cuív said at the Irish Association of Pension Funds (IAPF) conference that he cannot rule out a budget cut to the old age pension.

Around 266,000 people in Ireland have defined contribution pension schemes where the risk associated with the money invested is with the worker and not the employer.

Independent Trustee Company managing director Aidan McLoughlin said as life expectancy increases, the proportion of life occurring after retirement also increases.

“It therefore makes sense to have another occupation, scaled down from pre-retirement activity. Whilst this is a choice for some, it will be an economic necessity for many.

“The debt taken on in recent years means those retiring will potentially carry mortgage debt with them into retirement.”

He added that the state pension is set at “subsistence level” and may not be sustainable in years to come. A person retiring at 65 would get a state pension of €11,976 a year.

“The message is save early and often or prepare for working in your 70s.”

Director of IFG corporate pensions, Fionán O’Sullivan, said the danger with working in retirement age is that some employers may not want to maintain employees past age 65 and if they do, it may be on reduced income, with no “fringe” benefits.

The IAPF conference that took place yesterday, heard that, while pension losses were being clawed back following the market collapse in 2008, this has emphasised the need for DC members to maintain awareness of how they have invested their retirement funds.

Such members who have a shortfall need to be looking at how they can bridge the gap, or lower their pension expectation in retirement, the IAPF said.

More in this section

IE_180_logo
Price info

Subscribe to unlock unlimited digital access.
Cancel anytime.

Terms and conditions apply

Puzzles logo
IE-logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day. PS ... We would love to hear your feedback on the section right HERE.

Puzzles logo
IE-logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day. PS ... We would love to hear your feedback on the section right HERE.