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Research shows workers in the dark on pension planning

AUTO-ENROLMENT PIVOTAL TO OFFSETTING IRELAND’S PENSION INERTIA

  • 35-54-year olds most likely (43%) to expect financial hardship in retirement and inadequate retirement funds (60%)
  • 3 in 10 (28%) making personal pension contributions of less than 5% yet Ireland’s future retirees expect pension to be 42% of salary 
  • 2 in 5 18-34 year olds expect rent/mortgage payments to follow them into retirement
  • Almost half of those surveyed are not aware of tax benefits of a pension 

Monday 23 September 2019: New RED C research commissioned by leading pension provider, Aviva, has revealed a stark disconnect amongst adults in Ireland when it comes to pension planning.  The research, based on a representative sample of 2,000 adults, found that only 34% of them had a private pension.  Furthermore, 2 in 5 (43%) of them admitted to having no idea how much their pension fund is worth. More than half have no idea where their funds are invested, while (55%) were found to be in the dark on the tax benefits for pensions savers. With the sound of the pension ‘time-bomb’ ticking away against the backdrop of Ireland’s aging population, Aviva’s research has highlighted the need for a significant cultural shift when it comes to retirement planning, to offset the future likelihood of pension poverty.

Retirement preparedness

When it comes to retirement preparedness, the research from Aviva shows the 35-54 age category to be most worried about the adequacy of their retirement funds. This same age cohort are also most likely to believe they will be in a financially precarious position in retirement with 2 in 5 (43%) admitting they are likely to struggle in their twilight years. 35-54-year olds were also found to be least knowledgeable about their pension pots, with 2 in 5 (43%) admitting to being unaware as to how much their private pension is worth. Staggeringly, over half of all respondents (55%) were not aware of the tax benefits of a private pension.

Pension contributions

Despite private pension uptake remaining stagnant at just one in three adults, Aviva’s research has unearthed a pattern of prevailing optimism when it comes to respondents anticipated financial security in retirement that is out of kilter with what they are contributing now. Furthermore, the contributions across the age categories would show a consistent trend that people are not maximising their contributions as they get older or when their earning power is arguably at its highest.

Most of those surveyed (41%) declared private pension contributions of between 5% and 10%, with a further 3 in 10 (28%) contributing less than 5%. 35-54 year olds were found to be the age group most likely (35%) to be contributing less than 5% to their private pension. Only 1 in 10 (12%) of those with a private pension are making contributions of more than 10%.  While 20% of respondents do not know how much they are putting into their pension, 24% of women do not know compared to just 15% of men.

However, expectations of what that would equate to in term of retirement income were out of kilter with reality; with the average respondent expecting a pension on retirement of 42% of their salary.  Of more concern though is the fact that 35% of women did not know what percentage of their salary they would get on retirement, with 18% of men not knowing.

Richard Jones, Head of Life and Pensions with Aviva, commented:The findings of this study show a worrying disconnect between the pension people expect in retirement and what they are actually investing now to prepare for their retirement.  Putting retirement planning on the long finger is also evident, with a particularly concerning lack of preparation and awareness amongst those aged 35-54 years old. Without a significant cultural shift in how we approach pensions, or an acceleration of plans for auto-enrolment, the signs are pointing to retirement poverty being a prevalent issue for future generations”.

Knowledge of pension worth 

Over half of respondents (57%) know what their pension is worth or have a fairly good idea of the value of the fund compared to 2 in 5 (43%) who have no idea of the value of their pension.  There is also a gap in gender awareness with (54%) of women unaware of the value of their pension fund compared to one third of men.  

Compounding this is a very concerning lack of awareness about where pension funds are invested.  Only 15% are aware of the composition of their fund while overall half (53%) have no idea.  65% of women are unaware compared to 45% of men. 

Outgoings in retirement

Capturing the generational shift in home ownership that has started in recent years and what impact this will have on retirement adequacy, the number of 18-34 year olds (40%) who expect to still pay a mortgage or rent in retirement is double that of the 55+ cohort (18%).  Overall, half of the population are likely to carry some level of debt into retirement.

Putting pensions on the long finger

The research also found the average ‘tipping point’ when it comes to investing into a private pension in Ireland as being 28 years old.  Signs of continuing pension inertia emerged, with almost half of those surveyed waiting until they were 30 years old before investing, with an additional 1 in 10 (13%) putting off pension planning until their 40’s.

With the number of people eligible to draw down the State pension in Ireland projected to rise from 0.6 million now to 1.4million by 2055*, it is in everyone’s interests to encourage better understanding of the benefits of private pension ownership.  Government must also help by accelerating their plans to introduce auto-enrolment to safeguard retirement adequacy for generations to come”, added Richard Jones

*National Risk Assessment Report
https://www.gov.ie/en/publication/ac294e-government-publishes-top-strategic-risks-facing-ireland/

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Aviva Group Services Ireland Limited, a private company limited by shares. Registered in Ireland No.322579. Registered Office One Park Place, Hatch Street, Dublin 2.

Aviva Life & Pensions Ireland Designated Activity Company, a private company limited by shares. Registered in Ireland No. 165970. Registered office at One Park Place, Hatch Street, Dublin 2, D02 E651. Aviva Life & Pensions Ireland Designated Activity Company, trading as Aviva Life & Pensions Ireland and Friends First, is regulated by the Central Bank of Ireland. Tel (01) 898 7950.