So my pension is too small?
For most people yes. Outside the public service where Government pledges taxpayer euros to ensure people can retire on two-thirds of their final salary, there is a diminishing number of people who are putting enough away to build up an adequate pension pot.
What’s the latest recommendation?
A new report from Aviva says the average Irish worker needs to put an extra €1,000 away every month between now and the time they retire, unless they want to feel the pinch in old age. The gap between what Irish people have put into their pensions and what they are likely to need in retirement has grown more dramatically than anywhere else surveyed in the report since 2010. Back then, Aviva was suggesting people needed to save an extra €9,100 a year, or €750 a month; now that figure has grown by 38 per cent to €12,200 a year.
Is the news likely to get any better?
Not really. If anything, it could get a lot worse. We’re living longer, which means we need to have a bigger pot of money when we stop working. Investment returns are at historic lows so our pension savings are not growing as fast as we would like. And the figures include the State pension which may not be around in its current form for people retiring towards the end of the 2017-57 window the report covers.
What’s the problem with the State pension?
That pension is paid by the Social Insurance Fund – where all your PRSI goes. And it is struggling to meet those payments. State pensions account for 35 per cent of all welfare payments, and the figure is rising by €1 billion every five years. A regular audit of the fund says it could be over €324 billion in the red by 2055. Already officials are warning Government about the ability to pay annual increases in the State pension. That’s partly why government decided to increase the age at which it would start to pay the State pension, to 67 in 2021 and 68 in 2028. Further action is likely to be needed. That means the Government is facing hard choices. When it comes to pensions, successive governments have shown themselves to be unwilling to do so.
How many people are likely to have an extra €1,000?
Not many. With most people still struggling to restore their earnings to pre-crash levels, many struggling to pay mortgage or rent, and young families groaning under childcare and education costs, finding more than €1,000 a month or €12,000 a year – even with generous tax relief on pension contributions – is a big ask. And for families, with two working parents, the figure required is double that.
If I don’t have it to put aside, what happens?
You’re likely to have to tighten you belt more than you expected when you retire – a time many people had hoped not to have to contend with money worries. The report says that, at the moment, a person retiring is likely to have less than half their working income to live on. By 2057 – for those now in their late-20s – the figure is worse, at just 40 per cent. But at least you know. One of the biggest problems with pensions is that no one wants to talk about them until it’s too late. If nothing else, being aware of what you need to invest gives you a target to plan towards.
