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Younger staff losing out on E80m

Tuesday, April 15 14:27:25

Younger employees, in their 20s and 30s, are being urged to avail of employer contributions in Defined Contribution (DC) pension schemes.

A representative sample of 3,000 employees by Mercer highlights that 70pc of employees under the age of 30 are losing out on an estimated E80 million each year by not taking up the DC contributions on offer from their employers (the average overall employer contribution rate is 7.2pc of pensionable salary).

Mercer's analysis indicates that many younger employees are forsaking as much as 10pc of their salary each year by not participating in their company pension scheme.

The Government should take the issue of non-participation in DC pension schemes by employees under the age of 30 very seriously. The E80 million foregone each year when added with the employees' own contributions would grow to some E750 million each year by their retirement. Mr. O'Callaghan, Head of DC at Mercer commented: "These findings should be of significant interest to Government, as these contributions foregone will leave a significant hole in people's retirement funds in 40 years and will increase the strain on government finances as our population ages".

Mr. O'Callaghan explained "the current ratio of pensioners to workers is 1 to 5. The ratio in 2050 will be 1 to 2 and the affordability of the current state pension of E230 per week is in question. Therefore, it is critical that younger employees be better supported to plan for their retirement".

It is commonly assumed that affordability is the main reason why employees under 30 are not taking advantage of employer contributions. However, Mercer's research indicates that inertia is actually the main problem: in pension schemes where membership was 'opt out' as opposed to 'opt in', not only did 90pc+ of younger employees stay in the Plan but approximately 80pc actually maintain the top level of employee contribution.

Mr. O'Callaghan added: "This analysis really points the way for future government policy in this space. A properly constructed auto-enrolled system will significantly increase the number of people saving and the amount they are saving for retirement and lessen the future burden on the state".

To help employees Mr O'Callaghan suggested that "Employers should introduce a simple pensions framework for employees that is easy to understand and that meets employees changing needs, from the time that they enter the scheme right up until retirement. This should be supported 'under the bonnet' by a sophisticated investment engine to drive investment returns".