The Money Doctor - pensions

By: Money Doctor  05/12/2011


Generally people are living longer and leading more active lives in retirement. As a result it is more important than ever for you to think about where your income will come from when you retire. Your state pension will provide you with a basic level of retirement income, provided you qualify. When planning for retirement you will need to decide whether this is enough to live on in retirement and if not where your additional income will come from.  It is important for you to take control of your retirement planning and make decisions regarding your pension. 

Broadly speaking most peoples’ pensions come from one or more of the following:

1.      An occupational pension scheme (also known as a company pension plan)

2.      A PRSA (Personal Retirement Savings Account)

3.      A Personal Pension Plan (RAC – Retirement Annuity Contract)

4.      The State Pension

Inform yourself about your pension – it’s YOUR responsibility …who will look after you in your retirement ? The current State social welfare pension is €230.30 per week or € 11,976. per year (as of January 2009) …….will this be enough for you to live on ? 87% of a Pensions Board Consumer Research survey said that the State social welfare pension would NOT meet their needs in retirement. Where will your ADDITIONAL income come from when you retire?

The Facts

·        1,000,000 people in Ireland aged between 44 and 64

·        54% of the adult Irish workforce are over 30 years of age

·        90% of defined benefit pension schemes are in deficit

·        60% of pensioners income comes from Social Welfare ( while 3/5ths of the poorest pensioners, Social Welfare pensions account for 80% of the retirement income )

·        Occupational schemes account for 24%

·        Of the 30 OECD countries, Ireland lies 3rd from bottom in terms of pensioner poverty

Start your pension early, the longer you leave it, the more you pay !
A man retiring at 65 now can expect to live to 81 and a woman retiring at 65 can expect to live to 84!
It takes a long time to save for retirement and the earlier a person starts to contribute to a pension, the better.
For those who switch off at the first mention of pensions, it’s time to get informed.
Starting a new job – ask about your pension !

Did you know

·        By law, your employer must provide you with some form of access to a pension, whether you are in full-time, part-time, temporary, contract or casual employment.

·        You are legally entitled to information about your employer’s pension scheme or your PRSA, thanks to the Pensions Act.

·        You can save for retirement even if you are not working through a PRSA.

EXTRA EXTRA - Government announcement on the New National Pensions Framework ( 3rd March 2010 )

Pension qualification age to be 68 by 2028

The Government is to introduce a new mandatory or ‘auto-enrolment’ pension scheme in four years’ time as part of a major restructuring of pension provision in the State.

Under the New National Pensions Framework, the State pension will remain the basis of the pension system in Ireland, with the Government undertaking to preserve its value at 35% of average earnings.

AdvertisementHowever, in future, workers aged over 22 earning above a certain income threshold will automatically be enrolled in a new supplementary pension scheme to provide additional retirement income - unless they are already in their employers’ scheme, which provides higher contribution levels or is a defined benefit scheme.

Employees would contribute 4%, with the Government and the employer providing matching contributions of 2% each - making a total contribution of 8%.

Workers may opt out of the supplementary scheme, but it remains mandatory for employers. However, employees will automatically be re-enrolled every two years.

There will be a once-off bonus payment for people remaining in the scheme for more than five years continuously.

The State contribution will be equal to tax relief of 33% - down from the current maximum tax relief of 41%.

This State contribution will replace the existing pension relief system which currently applies to existing occupational and personal pension schemes.

The qualification age for the State Pension will rise from 65 to 66 in 2014, 67 in 2021, and 68 in 2028.

However, workers will be permitted to postpone collecting that pension, to make up contribution shortfalls.

There are also proposals to devise a ‘revised and more secure’ defined benefit model, which schemes may wish to consider if restructuring in the future.

Future employees joining the public service will enter a new pension scheme from 2010. The minimum pension age will be 66, with the pension based on a career average rather than final salary.

The Government is also considering linking post retirement increases to the Consumer Price Index rather than pay rises in the grade the worker retired from.

There will also be stronger regulation and more transparency on pension fund management charges.

The Government is introducing the reforms to address problems regarding population changes, income adequacy in retirement and to ensure the sustainability of the Government finances.

It is estimated that while there are almost six workers to support each pensioner today, by the middle of the century that ratio will have fallen to less than two workers per pensioner - creating an unsustainable burden on the working population.

In addition, State expenditure on pensions will increase from 5.5% of GDP to 15.5% by 2050.

The Taoiseach said the reforms would be phased in to improve pension provision while protecting competitiveness.

He said the Framework sets out how to protect pensioners in the future, as well as encouraging people to provide for their retirement in a fair, transparent and sustainable way.

Finance Minister Brian Lenihan said the reforms aimed to achieve a balance between the individual’s own responsibility to provide for their retirement and the Government’s desire to ensure that older people are protected. He noted that good pensions were costly, whether provided through the State system through taxes and social insurance, or individually through private provision.

In relation to the new single pension scheme for all new entrants to the public service, the Finance Minister said it was vital to develop a new system ensuring greater consistency between different sectors, provide good benefits to pensioners, and be affordable for the State into the future.

Minister for Social & Family Affairs Mary Hanafin acknowledged that previous efforts to encourage people to invest in personal pensions had not been as successful as expected - especially among low to middle income earners. She said the auto-enrolment supplementary pension would ensure that those groups would receive supports from both the Government and the employer.

She said the system of matching contributions from Government and employers would be fairer than the current system whereby higher earners get greater support through higher tax relief.

An implementation group is being established to spearhead putting the reforms into operation.

It is forecast that this work will take up to five years to complete.

The information in this article was current at 02 Dec 2011

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