Traditionally, people worked their whole lives safe in the knowledge there would be a pension at the end of it.
However, figures from the Central Statistics Office show only 46.7 per cent of people in employment in the State had pension coverage at the end of 2015, down from 51.2 per cent in 2009 and 54 per cent in the first quarter of 2008.
The most common reason given by respondents for not having a pension, reported by 39 per cent of workers, was that they could not afford one. Defined benefit schemes, which guarantee an income on retirement, are disappearing and a move towards defined contribution schemes means that both employer and employee contributions are invested and proceeds used to buy a pension.
Brian Kingston, retirement and financial planning manager at Investec, says the question is how we will fund this period of our lives, if we are not making provision for it now? Working longer is one solution or relying on a State pension is another. Neither is very appealing.
‘Competing financial needs’
“During our working lives we have a limited period where we can make decisions on our competing financial needs. What do we spend today’s income on: mortgages, education, children, holidays as well as food and bills? A suitable, affordable retirement plan is also a requirement,” he says.
Declan Hanley, head of financial planning at Davy, says if you don’t also make provision for a death or serious illness, you are leaving yourself wide open to uncertainty.
He says when it comes to retirement, traditionally companies would have made provision for their employees. However, the new approach is that both employer and employee put in to the pot, creating more financial pressure for the employee.
Kingston agrees “a job for life’ is no longer. We move jobs a lot more now so we seem to collect a number of pension plans along the way.
“The new approach should be ‘take control’ of your money with the help of prudent advice. Be involved in the investment process, ask about charges and who is taking money out of your fund and keep informed about changes in legislation that might affect you.”
Compulsory pensions
The Government may introduce compulsory pensions in the future, as in the UK. This would mean people having to opt out of saving rather than the current situation of opt in. Hanley says in terms of protection, things are becoming more innovative.
“Traditionally, when you died you got a lump sum and for families, that was very difficult to manage. Now income on death is better. With healthcare, it’s difficult, people traditionally had VHI plan B or C and now there are thousands of plans. It’s a bit trickier but it allows you target the things that you want.”
Kingston agrees that when it comes to protection, it should not be about a “lotto windfall”.
“It should be a monthly number to live off after loans, debts and mortgages are paid down. Life cover or protection options are not designed to make us millionaires but to ensure we continue to have the same lifestyle for our families.”