Workers should increase the amount they contribute to their pension funds immediately or face a financial shortfall during retirement, Jim Power, chief economist at Friends First said yesterday.

Speaking at a presentation of the group's quarterly economic outlook in Dublin, Mr Power said that if private sector workers continue to pay the same amount into their pension funds as currently, equal to about 10 per cent of their total income, Ireland's pension deficit could grow to as much as €15 billion a year, from the current deficit of €5 billion.

The ideal contribution is between 15 and 20 per cent of an individual's income, he said.

"Now is the time to address this issue before it's too late," he said.

"Pension coverage will have to be increased or the nature of retirement will have to change."

With average life expectancy rates rising, people will probably have to work longer to raise enough money to fund extended periods of retirement.

By 2036 almost 22 per cent of the population is expected to be over the age of 65, compared with just over 11 per cent in 2006, meaning that more people will be dependent on the working population.

Mr Power said it's up to the Government to provide tax incentives to encourage people to invest in their futures.

This is particularly important for women and lower paid workers, who, according to Mr Power tend to be less well covered as far as pension provision is concerned.

Currently only 51 per cent of workers are covered by a pension scheme, well short of the government's 70 per cent target, he said

Mr Power also said he expects Ireland's economy to continue growing this year, with a 5.4 per cent increase in gross domestic product, compared with 4.9 per cent in 2004.

Consumer spending will continue to be strong and as many as 50,000 new jobs will be created, he said.

Friends First, which has offices in Dublin, Galway and Cork, is one of Europe's largest insurance groups providing financial products including pensions, investments and savings.