The Pensions Authority regularly reports on the huge shortcomings in Irish workers’ private pensions.

Around one million private sector workers have no personal pension arrangements. That is roughly 70% of the private sector workforce, and there is nothing to suggest pension provision is not similarly neglected in the agri sector.

However, recent research for Davy investments division, iCubed, indicated that for 60% of respondents, retirement funding was a primary reason for the investments they held.

It found that property still emerged as the top-ranked investment choice, coming out ahead of pension top-ups.

Gary Connolly, iCubed managing director, says they continue to see property as “a safe and steady investment, notwithstanding high Irish mortgage rates and the tax implications of a sale, rental income, or passing on property as an inheritance”.

This does raise the question that if sizeable numbers do not have a private pension, per se, are they planning to provide for their retirement in other ways, or with different investments?

Pensions not considered

Some 20% of those without a pension in the iCubed survey said they had never considered investing in a pension, says Connolly.

He says that other reasons for not having a private pension ranged from not understanding them, to not being able to afford one, to individuals who felt they were too young to need pension contributions.

He believes Government policy to address the low level of pension coverage should reflect these stated reasons.

“People have been talking about a pensions time bomb for a long time now, and the high number of people who will not have any personal retirement income beyond what the State will give them is set to become a very real crisis,” says Connolly.

He states that the pension age is being extended to 68 and, at around €230 per week, the full rate contributory State Pension would represent a major income drop for many people.

He says there is legislation for employers to make PRSA salary deductions available to employees not covered under job-related pension schemes, but that this has not actually improved private pension coverage or adequacy.

He also adds that calls for a national auto-enrolment pension scheme would seem to make sense, although people often resent the idea of a ‘nanny State’ trying to control what we do with our money, and if and how we provide for retirement.

Start early

He says those who make contributions from when they start work, obviously need only put away a relatively small amount of their income over the longer period.

He warns that many people start contributions relatively late in their career, or only take an interest when their pension reaches a sizeable amount, often around €50,000.They then begin to view their funds as real assets and take an active interest in investment, and monitor contribution levels.

Investment attitudes

“Whether it is affordability, complexity or lack of foresight that causes Irish people to neglect their pensions, the fact remains that, as a financial product, a pension is a great value tax efficient investment,” according to Connolly.

He says planned longer-term investment portfolios can provide security for retirement, but come with the usual provisos around taking advice and only investing at a risk level you can bear.

He says that while the average investor looking to fund their retirement should probably not be involved in IPOs or buying individual shares, investing through mutual or diversified funds, spread across various assets like property, bonds, cash or commodities, will reduce the risk of one particular stock or sector.

He also believes diversification allows for more potential reward by offering a broader exposure to different stocks and sectors.

Whatever your pension pot, a financial adviser can explain the various implications and best options, depending on individual circumstances and retirement plans. Just don’t leave it too late.

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