IRELAND - The vast majority of Irish people who pay into defined contribution pension schemes are not putting enough away to ensure an adequate level of income in retirement, according to Raymond McKenna, director, people strategy at KPMG, speaking at a recent Irish Association of Pension Funds (IAPF) seminar, Dublin.
IAPF figures show that combined payments by employers and employees into Irish defined contribution pension schemes average 10% of salary. Projections across a range of age groups find that this level of contribution is insufficient for most people to attain an income in retirement equivalent to two thirds of salary.
In order to bridge this gap pension plan members should look to increase the contribution rates they pay to their defined contribution pension plans, said McKenna.
The recent increase in allowable AVCs will facilitate this process.
McKenna said that pension scheme members who hope to retire early should be made aware of the vastly differing levels of funding required to achieve this.
He also recommended that the State should be more flexible in defining normal pension age and allow for partial retirement for people who may wish to access part but not all of their retirement benefits.
Gerry O'Carroll, main partner, Watson Wyatt, told the IAPF seminar that minimum funding standards for Irish pension schemes are out of step with current reality and are in danger of accelerating the move away from defined benefit schemes.
He said that pension funds should be judged on their ability to pay over the long term. Short-term solvency standards were putting undue pressure on companies to the detriment of pension fund members.
The vast majority of Irish pension schemes are threatened by solvency standards which are too short term and which may hasten the demise of the defined benefit schemes structure, said O'Carroll.
Leslie Ruttle, European partner, Mercer Human Resource Consulting, challenged conventional thinking that there can only be two solutions to retirement provision - pure defined benefit or pure defined contribution.
He suggested that because companies operate in different business environments and as such have different human resource and business needs it makes commercial sense for employers to choose a retirement programme which underpins their overall business strategy.
When looking at the design of its occupational pension scheme every employer has alternatives to the more traditional approaches adopted to date and some are looking at these alternatives while working to match employee expectations of pensions in retirement with the employer’s commitment.”
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