Pensions to be worth half figure projected

THOUSANDS of people will be forced to survive on pensions worth less than half their original projected values, experts warned yesterday.

So severe has the stock market collapse been that financial experts fear those who took out pensions in the late 1980s may have only a quarter of the value of their pensions left.

As a result, many will be forced to work long after age 65 in a bid to maintain even a fraction of their current standard of living.

Ark Life, the life assurance and pensions provider owned by AIB Group, warned that under performance in the stock markets over the past three years has set the scene for a major pensions’ timebomb.

Those who opted for endowment mortgages could also face serious repayment difficulties. The current pensions' crisis was triggered by the collapse of the hi-tech sector in the US at the beginning of 2001.

It caused share prices to tumble and with upto 70% of most pension funds invested in the stock markets, the implication for pension fund returns are extremely serious.

Those who took out private pensions, including Defined Contribution Plans from the late 1980s, could have pensions worth significantly less than half of their original projected values, said Brian Woods, finance director and actuary at Ark Life Assurance.

“The legacy of mortgage and pension investment in Ireland, post the stock market crash, was not yet fully understood,” he added. When these pension plans were taken out, investment earnings of 12% or more were envisaged on the stock market. Added to this assumption was that double digit interest rates on annuities would continue.

Both of these rates of return have since collapsed leaving investors facing a double whammy, according to Mr Woods.

Defined Benefit Plans are not affected, but all other personal pensions including Defined Contributions taken out since then could be badly undermined, he said.

A recent British government report suggested people be allowed to work beyond the official retirement age in order to get over the inadequacy of their retirement schemes. Mr Woods said the industry faced a huge communications problem in trying to inform people that many of their pensions and mortgages will fail to deliver.

MD of Ark Life, Billy Finn, who launched the group’s 2002 results in Dublin, warned that on the bigger issue of future pension needs the situation was heading for a deeper crisis than many realised.