Many Irish workers seriously underestimate the level of pension contributions required to provide them with a comfortable retirement, Mercer investment consultants warned today.
A new survey by Mercers reveals that contributions to defined contribution schemes are rising but remain inadequate to cover the cost of retirement.
Members of defined contribution pension plans receive an average contribution rate of 10 per cent made up of an employer's contribution of 5.9 per cent and the balance made up by the employee, the survey finds.
However the level of funding varies across industries and defined contribution schemes offer no guaranteed income at retirement.
Mr Ken Mortimer of Mercers warned that many low-paid workers will face a large shortfall in their income until they become eligible for the State pension at age 65.
The news is not much better for higher paid workers. An average contribution of 10 per cent is likely to be less than half of what is needed to provide a reasonable level of replacement income after retirement, especially if the employee aspires to retire before age 65.
Mr Mortimer said many employees who are members DC pension plans are completely unaware of the level of income they are likely to be provided with after retirement.
He points out that in a DC plan, a member cannot estimate the likely level of pension income without access to a projection tool or a statement showing their expected level of income after retirement.
"We would encourage employers to make these tools available to employees, so that they have information on the level of AVCs required, well in advance of their retirement, " Mr Mortimer said.
" At a minimum, making such a tool available is likely to give employees a more realistic picture of when they can retire and avoids unpleasant shocks for employees at retirement," Mr Mortimer added.
In a defined contribution pension plan, pensions in retirement depend mainly on the level of contributions paid, the rate of investment return earned and the price of buying an annuity with an insurance company at retirement.
In a defined benefit scheme the member's pension on normal retirement is specified usually in terms of their salary and service, giving the member more certainty regarding the level of their income during retirement.