Wednesday, October 10, 2012


Don’t be shy – it’s time to prove you are the retiring type

Marie Ainsworth 

Have you ever looked out the window on a cold, wet, windy, miserable day and thought: “God, I’d hate to be out there on a day like this with no home to go to ...

The stark reality is that this country is facing hard times and while we all hope that we’ll come out the other side of this recession as a wise and stronger nation, there are some legacy issues that are just not going to go away.


One of the biggest is that of the “pensions crisis”, and not just for Ireland but most western nations. Let us put it in some context. The state pension bill — the retirement income paid to both state employees and all beneficiaries of the state pension — is increasing daily. It is paid from taxes collected on a daily basis.

If our workforce keeps shrinking — as it has been since 2009 (and by 33,400 in the past year alone to June 2012) — this has to result in an increase in taxes and PRSI contributions which pay the ongoing benefits, or in smaller pensions. Life expectancy has also been steadily increasing and pensions, including the state pension, must now be paid for longer. According to the National Pensions Framework report, by 2050, when workers who are just joining the workforce today are ready to retire, the number of over-65s will have doubled and will make up 28% of the total population and equal nearly 50% of the 15-64 age cohort.

Up to 2011, there were six working people to each pensioner. By 2021 there will be only three workers to each pensioner. If you are currently under the age of 57, you will not be entitled to your state pension until you are 68 and it is expected that this retirement age will most likely be moved to 70 if the state pension system is to have any hope of survival.
In the light of all this negative employment and demographic evidence, the question that everyone should be asking themselves now is: if your employer have plans to retire you off at 65, do you have sufficient savings or a private pension to live off until your state pension payment falls due?

With our government under so much pressure from its European and International Monetary Fund paymasters to keep cutting social welfare benefits, you may be forgiven for wondering if there will even be a state pension worth claiming in a decade’s time?
And on it goes...

If it is any consolation, we are not alone. Governments across the western world are having to deal with the enormity of the no-money and ageing population problem, and many are making it compulsory for all workers to contribute to private pensions. From next week, the UK auto-enrolment occupational pension scheme will be rolled out in an effort to increase private pension membership. Anyone aged 22 or over, earning more than £8,105 (€10,150) a year and employed for three months or more, will be made a member of an employer’s existing occupational pension scheme. Similar schemes already exist in Australia and New Zealand and have been under discussion here for several years.

There is an old adage: “How do you eat an elephant? Answer — One bite at a time.”
The only way Irish workers — and I believe these must include those employed by the state as well as those in the private sector — are going to avoid a financially meagre old age is to start saving early and increase their savings annually. If an employer offers to contribute into the employee’s plan, the long-term benefit will be significant. If he offers a death and/or disability plan, all the better as this allows you to pay even more into your pension fund.

Anyone who is 10 or more years away from retirement has to include real growth assets in their pension portfolio by diversifying across a broad range of assets. While it must always aim to get a return at least above the true rate of inflation, no pension fund is going to grow sufficiently if the holder doesn’t also keep an eye on product charges and fees.
Poor fund returns and the widespread disillusionment with formal retirement saving is the product of a litany of bad industry practices, high charges, volatile markets and a huge amount of ignorance and apathy by employers and employees. The only way to reverse this is to take the time to understand how the pension operates, what the plan incorporates and then to review it regularly.

There are thousands of people in middle age in this country who regret not getting into the habit of putting aside a small part of their earnings from an early age for their retirement.

Marie Ainsworth is a director of Mount Street Group financial advisers in Dublin.