Those now retiring at 65 can on average expect to live for a further 20 to 30 years. But for many retirees, a major worry is whether they have made adequate financial provision for their retirement. Figures published by the Central Statistics Office last week showed that private pension provision is declining and that the numbers who will depend on a State pension rose from 26 per cent in 2009 to 36 per cent last year.
Those solely dependent on a State pension (€12,116 annually) face a daunting financial challenge in making ends meet. Some retirees can bolster their retirement income by continuing to work on a part-time basis. But others, who depend on savings to boost their pension income, may find themselves forced to live on less.
Given longer life expectancy and with more companies closing defined benefit – final salary – pension schemes, the adequacy of overall pension provision is increasingly called into question. Low interest rates mean that savers are finding it hard to get an adequate return on their investment without assuming an unacceptably high level of risk. At the same time, retirees who use the proceeds of a defined contribution pension to buy an annuity now find the same sum buys an annual income half what was available a few years ago. Today a €100,000 pension pot would provide just more than €4,000 in annual income.
There are questions, too, for the industry. Traditionally fees and charges – many less than transparent – have eaten away at the real value of pensions. If more people are to invest in pensions, then they must feel that they are getting a fair deal. The Government has a role in this regard.
The Organisation for Economic Cooperation and Development (OECD), in a global review of pensions last year, said future generations may find their pension entitlements much less generous and warned of pensioner poverty. The last government did much to make matters worse – by a draconian pension levy and by its failure to introduce a mandatory pension scheme as advised by the OECD. There is nothing to suggest the new Government will do better. The clock is ticking.