There’s been lots of press recently about the pension time bomb. This has been ticking for years now and is getting louder every year. More consultation papers are issued, another report is written and nothing done. It is like tidying up your desk and pretending that you are working.
While the government continue to do nothing about the pension time bomb, an article was published in the Irish Independent last week that caught my eye. According to research carried out by Standard Life, the average pension is worth just €60 a week.
The fund required to provide €60 a week is just €80,000. If you were to save for that over your working life, it would cost you €40 a month. There is really no point in having a pension that size as it provides you with very little at retirement. You certainly can’t rely on it to provide the income you need, you will be reliant on the State pension, which puts more pressure on the Exchequer as more people receive the State pension.
Having funds this size is bad for the imagine of pensions as people tend to gripe about how little they get from their pension and label them a waste of time. The issue here is that not enough money is put into pensions during people’s working lives, so they get little out of it at the end.
There is only one solution…introduce mandatory pensions.
There has been talk of introducing some sort of pension plan for years now but successive governments have put it off, waiting for perfect economic conditions before they introduce them. But there never is the perfect moment, there are always demands on money. We need to just do it and get on with it. They do it for public servants who have mandatory pension plans, why not for the private sector too?
Let’s have a look at what introducing mandatory pensions will do. According the the CSO, the average salary in Ireland for 2015 is €36,519. If everyone paid 5% of their salary into a pension, after 40 years (assuming pay rises of 2% each year) they would have a pension pot of €378,974. That would provide a pension of €282 a week, a 470% increase on the average being paid today.
Whether a solution is introduced is down to how seriously government view this and whether they will be dissuaded by vested interested. Until they act, we have to ensure that we fund our retirement by ourselves.
If you have any questions, you can send me an email at email@example.com
The quotations provided in this article are for illustration purposes only and are not guaranteed.