The gap between people's pension savings and what they are likely to need in retirement financially is widening dramatically.

A study by insurer Aviva says, on average, Irish people need to increase the amount they save by more than €1,000 a month.

People living longer, lower investment returns, more expensive retirement annuities and the five-year freeze in the State pension up to 2015 means the shortfall between current savings and amount needed to generate an “adequate” retirement income has risen sharply since 2010 when the insurer carried out a similar study. It says the pension position of Irish workers has been the most adversely affected in its Europe-wide study.

"Ireland's current generation of retirees – those retiring between 2017 and 2057 – need collectively to save an additional €27.8 billion per annum to provide an adequate income in retirement," the Mind The Gap report states. "This gap has increased from €20.2 billion in 2010."

The figures mean that, on average, people will need to put €12,200 a year – or €1,107 a month – more into their pension plans than they do at the moment, according to the report which says the gap per person in Ireland is the highest in Europe after the United Kingdom.

Grappling

The figure has jumped close to 40 per cent since the 2010 report. The comparable figure for Europe as a whole is 6 per cent.

“The findings of Aviva’s long-running Consumer Attitudes to Savings research used in this report, paint a picture of a country grappling with the reality of inadequate pension provision in a low interest rate, post-financial crash environment,” the study states.

As it stands, Aviva says, someone in Ireland retiring next year can expect pension income that will be just 46 per cent of the level of the current income. At the far end of its horizon, for someone retiring in 2057, this “replacement income” is likely to have fallen to 40 per cent leaving many people struggling financially.

There are significant differences in the level of additional contributions needed to rectify the position according to current age, although in all cases, it is much higher than in 2010. Someone currently aged 20 needs to put another €4,400 in excess of current contributions into their retirement fund. Back in 2010, the equivalent figure was €1,700 per annum.

The shortfall jumps to €5,100 annually for someone currently aged 30, €6,700 per annum if you are 40, and €9,700 for a 50-year-old. Someone at 60 who is just seven years from retirement now will need to top up their pension fund by €28,0000 each year between now and then if they want adequate resources in retirement.

Replacement income

The Aviva study uses the OECD target figure of 70 per cent for replacement income – ie that income in retirement should be, on average, 70 per cent of what you earned before you retired. Lower earners are assumed to require replacement income of 90 per cent, with middle-income workers aiming for 65 per cent and wealthier people 55 per cent of the pre-retirement income levels.

While half of Irish people surveyed said they were worried about not have enough in their pensions, only 36 per cent said they were doing anything about it – figures that were broadly in line with the experience elsewhere in Europe.

The report only considers pension savings but concedes that many people may have other investments or assets that might help fund retirement. However, even then, they say, problems remain.

The report says reform of the Irish pension system is now urgent after a series of reports highlighting both the problems and possible policy initiatives to address them.

“The pension savings gap in Ireland is daunting,” the report states.

“We know that countries which have taken action have largely succeeded in containing their gap, for example the UK. We must learn from their experience by making decisions now that will ensure that our pension savings gap does not increase and can be reduced.”

The pension fund provider calls for autoenrollment of all workers in private pension schemes, a major improvement in communications so that people are aware of what they need to save and education on pensions and related issues from an early age.