Is the pensions glass half empty or half full? Since 2008 and the financial crash, Irish pension savings are 70 per cent higher. The bad news, however, is the liabilities of pension funds have risen even faster. Many people in defined contribution or money purchase pension schemes – where retirement income is based on the value of their pension fund – must now plan for a lower than anticipated income in retirement. As Jerry Moriarty, chief executive of the Irish Association of Pension Funds (IAPF) noted, "people will either have to live on less, retire later, or increase their savings".
Mr Moriarty’s blunt warning has come as pension savings reached €107.8 billion in 2014, with defined benefit – or final salary – schemes accounting for almost two-thirds of the total. With defined benefit schemes, the employer promises to provide final salary benefits to employees – if possible. Since the recession defined benefit schemes have declined in number, some closing down, others no longer accepting new members. At present four out of 10 defined benefit schemes do not meet the required funding standard, as their liabilities exceed their assets. In defined contribution schemes, pension savers carry all the investment risk, though many are ill-equipped to do so.
A major problem for the pensions sector has been the adverse impact of low interest rates. As rates have reached historic lows, the cost of pension provision has risen, as the liabilities of defined benefit funds increased. For defined contribution members too, low rates have also made securing a retirement income more expensive. The Government has abdicated its responsibility on pensions: breaking faith with savers via a levy that has raised more than €2 billion from pension schemes. The Government has also failed to address the sizeable annual deficit in the State pension, which is set to soar to unsustainable levels by mid-century unless a funding plan is adopted. The Government, it would seem, is opting out of pension provision, while failing to put in place a savings framework to encourage people to plan now for their long years of retirement.