Only 25% of the workforce have adequate pension savings

Three-quarters of Irish workers in the private sector do not have enough pension savings, the Irish Pensions Board has warned…

Three-quarters of Irish workers in the private sector do not have enough pension savings, the Irish Pensions Board has warned the Government.

In a stark briefing for the Minister for Social, Community and Family Affairs, Mr Brennan, the board said €6.6 billion a year more needs to be put into pension plans.

Just 52 per cent of private-sector workers have retirement plans, the Minister was told.

Mr Brennan, who is preparing to produce a White Paper within six months, has now told the Pensions Board to produce proposals by late January.

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"I can't ignore an issue where over half of Irish workers in the private sector have no pension, absolutely no pension, apart from the State pension that we will all have at 66," Mr Brennan said.

Just 37,000 people working for companies without pension plans, or as self-employed have set up Personal Retirements Savings Accounts (PRSAs), the Minister said.

"The PRSAs have not been hugely successful. They are complicated. The middle-class-type of individual is able to get advice and organise these things.

"The people who need the pensions are not accustomed to going off to their accountants to talk about PRSAs. We are missing a huge group of people who don't have the support to help them out," he said.

In its briefing to the Minister, the pensions board told him that 75 per cent of people in the private sector were heading for inadequate pensions, very small pensions, or only a State pension.

"Only 25 per cent of people would have anything near adequacy. Adequacy would generally be half your previous income," he said.

However, the Minister ruled out increasing the retirement age beyond 66.

"I think it is legitimate to say to people that we want you to go on working longer. We do need to get people to work longer and we do need to get them maybe up to 70. But I don't think that you can make that compulsory.

"I think you can encourage them," he said, adding that he has looked at the British government's decision to reward people with higher pensions if they work until 70.

"The British thing is interesting in that if they voluntarily leave their funds, then the government there will top it up. That is an interesting concept," he told The Irish Times.

The State was faced with two options, he said. "One, you develop huge tax breaks and campaigns to get people to look after that. The other road you go is to expand the mandatory system, which is the PRSI system.

"I think we should look at both of those routes.

"The second one is politically difficult because people see it as extra tax. People see it as extra tax here. It is not really seen as insurance," he said.

The Minister said it might be possible to require all new workers to invest in pension plans once they are employed.

Offering a stark message to younger workers, he said they should remember that they would have a €8,000 State pension if they did not make their own preparations.

"I think more focused tax breaks for younger people would be something that I would like to look at," he said.

"The existing tax breaks are across the board, but younger people starting out need to be sold the message that they will get a considerable tax break if they sort out their pensions."

Younger workers know little about pensions and feel that "they can't spare" the money: "They don't see any sense of urgency about it," he said.

However, he acknowledged that the Government could not make pension savings mandatory unless it offered a State-backed pensions scheme.

He also acknowledged that companies are increasingly reluctant to create pension plans and said a new system, where the State, employers and employees each contributed a third, could be one way forward.

Mark Hennessy

Mark Hennessy

Mark Hennessy is Ireland and Britain Editor with The Irish Times