It’s that time of year when we are all more intensely focused on our ever-lightening wallets as the Christmas season puts a strain on our willpower not to buy everything in the stores. Whilst most of us are focused on the short term goal of getting over the Christmas period, it has emerged that far too few of us are focusing on our longer term goals, particularly our goals in terms of retirement.
A recent study by the Organisation for Economic Co-operation and Development (OECD) has found that the average Irish worker’s pension is worth less than half of their earnings (roughly 34%) due to the lack of provision made beyond the basic State Pension. This leaves Ireland far behind other European countries in terms of pension provisions. In addition to this, it has emerged that approximately two thirds of workers have no occupational pension to supplement their State Pension. This news does not bode well for the future retirement of Ireland’s workforce, and has been described as being a pensions time bomb.
In order to combat this issue and diffuse this situation, a new scheme is being planned which would see workers paying 5% of their salary into their pensions from their 20s onwards, with employers expected to match the 5% annually. The scheme would be mandatory and would see workers and employers enrolled automatically. The OECD have stated that this could more than double the existing pension potential of workers without being a significant drain on their current earnings. If all workers had an occupational pension in addition to their State Pension we could avoid major issues when our young workers reach old age.
It is also believed that middle class workers who do not have an occupational pension, could see their pension be worth as little as 24% of their salary. The OECD believe that these occupational pensions should be mandatory for all workers entering the workforce from age 20 onwards in order to diffuse this ticking time bomb. Ireland and New Zealand remain the only countries within the OECD that do not have mandatory second tier pension provisions, with other countries having various options available.
Taoiseach Leo Varadkar has stated that there could be an automatic enrolment scheme in place for these provisions by 2021, with the option for workers to opt out.
Should you have any queries on any financial or business matters please don’t hesitate to contact us here at EcovisDCA, where we will be happy to help.