250,000 workers face pensions time bomb

BizWorld news

September 24, 2003

Almost a 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).

 Raymond 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 retirement.

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.

Copyright 2002 Global Action on Aging
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