workers face pensions time bomb
September 24, 2003
quarter of a million Irish workers with defined contribution pension
schemes are sitting on a potential pensions time bomb and largely unaware
of it, according to the Irish Association of Pension Funds (IAPF).
McKenna of KPMG and the IAPF told a conference today that the average
defined contribution pensions member needs to "significantly"
increase contributions if they are to secure an adequate income in
Unlike defined benefit pension
schemes, which guarantee a retirement income as a percentage of final
salary, defined contribution schemes have no such guarantees.
The majority of pension schemes
in Ireland are defined benefit.
IAPF figures show that the
average contribution by employees and employers to a defined contribution
scheme is about 10pc of income but McKenna claimed that the average member
needs to double contributions, while some should pay up to 25pc of their
income, depending on age and circumstances.
He also warned that retirement
income is threatened by risks in terms of investment market performance
and interest rates.
"Even if they get the
contribution levels right they have got to be aware of the risk caused by
inappropriate investment strategy, volatile equity markets and a low
interest rate environment," McKenna said.
He added that many were still
unaware of the fact that low interest rates increased the cost of an
annuity required to buy a pension for life and he called for greater
education in relation to the risk of inappropriate levels of
contributions, investment strategy and low interest rates.