Irish people need to save an additional €27.8bn a year to close the gap between current pension savings and the income needed to provide an adequate standard of living in retirement.
This is among the findings of Aviva’s landmark Mind the Gap analysis of the pension savings gap across Europe, published today.
In Ireland, the gap has increased from €20.2bn in 2010 when Aviva first measured pension savings against adequacy for retirement.
The size of the gap means the current generation of retirees – those due to retire between 2017 and 2057- will have to save, on average, an additional €12,200 (gross) per annum or €1,017 (gross) per month. This takes account of the State Pension but excludes tax relief on pension savings. This is the second largest savings gap per head of population in the 8 EU countries included in the Report: the UK’s gap is the highest at €13,200 and Germany’s, at €11,600, ranks in third place.
The size of the gap depends on a person’s age. Younger workers face a smaller gap because they have more time to save for retirement but the gap has widened for all age cohorts over the last 6 years. Those in their sixties face the largest gap: an average of €28,000 per year, up from €21,100 in 2010. For this group, many of whom are still feeling the financial impacts of the recession, the gap between their savings and the retirement income they had hoped for may be insurmountable. It is clear from the findings of the Mind the Gap Report that some in this age group will have little option but to continue to work to supplement their pension income.
The Report found that while postponing the retirement age and increasing the State Pension would help reduce the gap somewhat; these efforts will be fruitless unless the decline in the numbers saving into a private pension is reversed. The latest CSO data show that the number of workers with pensions now stands at 46.7% compared to 51.2% in 2009.
Aviva believes the answer to the problem of poor pension coverage is the speedy introduction of a universal pension system under which all workers would automatically be enrolled in a pension scheme by their employers. This system, which was introduced in the UK in 2012, has been among the factors that contributed to a fall of 4% in that country’s savings gap.
Managing Director of Aviva Ireland Life & Pensions, Gary Marshall said, "Despite the pressure on the public finances throughout the crisis, the government, to its credit, maintained the tax relief on pension saving. Nonetheless, pension coverage has fallen by 4.5% over the last 6 years. Our report shows that the introduction of auto-enrolment has been an important factor in the bridging the gap in the UK."
He added, "We believe a similar system would have the same beneficial impact in Ireland but it needs to be introduced without any further delay."
Source: www.businessworld.ie
