IRELAND - The majority of people in Ireland with defined contribution (DC) schemes are not contributing enough to their plans, according to a report from the Irish Association of Pension Funds (IAPF).
The report found that on a salary of e50,000 a 30 year old would have to almost double his or her contributions from 10% of salary to 19.4% in order to ensure an adequate pension in retirement.
These figures were calculated based on the average provision of a two thirds of salary pension, but employees face a more realistic pension of 40-45% of salary if they do not increase their contributions.
The main threat to an appropriate retirement income from a defined contribution scheme is a major lack of understanding of the impact of a low level of contributions, commented Joe Byrne, vice chairman, IAPF.
We conclude that there is a major mis-match between people's expectations and what they are contributing to defined contribution schemes.
Defined contribution schemes within the private sector and the commercial state sponsored sector have overtaken defined benefit (DB) plans representing more than half (51%) of all schemes.
Encouraging employees and employers alike to up their contributions is no light challenge agreed Byrne, especially considering pensions have suffered negative returns over the last three years. Ten year returns in Ireland however measure 9%.
Byrne said that the tax position of contributions should become higher profile as this is a significant incentive to contribute to a scheme in Ireland.
“Broadly speaking to invest e100 in a pension plan it would cost you about e50. Your net pay reduces by e50, but you are investing e100 in the plan so it is very tax effective,” he said.
To a large extent this debate has been noticeably absent from the public’s eye in Ireland.
“In the UK there are a lot of major employers with DB schemes that are showing huge deficits. In Ireland, its not so bad, but nobody is thinking about the defined contribution people.
“It’s just conveniently forgotten that their funds should be 40-50% higher than they actually are,” said Byrne.
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