What exactly is the "pensions dilemma"?

[nestegg]

Hi all,

What exactly is the Irish "pensions dilemma"?

It seems to be all things to all people, can anyone throw an objective light on the subject for me?

thanks,

 

[Protocol]

I don't know, I've never heard of that phrase.

I know a fair bit about pensions, but I don't know what that means.

Perhaps you might be a bit more specific?

A dilemma implies a choice of some sort? Well if you work, you have no choice but to pay PRSI, and so you will receive a pension. No dilemma there.

If you are offered an occupational pension, you should join it (especially if it is a DB scheme, or if it's a DC scheme with employer's contribution). No dilemma there.

I haven't thought of any dilemma so far. Maybe if you were in your 20s, and choosing between saving for a house or paying off a mortgage versus saving for a pension, you may face a dilemma?

 

[nestegg]

Hi,

To be more specific, "pensions dilemma" is a phrase which I have heard bandied about by various players in both public and private pensions sectors.
With regard to 1st pillar pensions, it appears to refer to the projected fall in the pension support ratio from >4:1 today to <2:1 in 2052: which the government seems to be using as a rhetorical device in urging Irish workers to purchase supplementary pension provision rather than tackling the politically delicate subject of overhauling the Irish 'pay as you go' system.
When used in relation to 2nd pillar products the situation is a little harder for me to read. Unpredictable performance of DCs, the growing cost of annuities as a result of increasing post-pension life expectancy, the debate surrounding the extension/abolition of mandatory retirement age all feature in the literature.
I am researching the topic for an academic essay and would love to get an opinion from an objective viewpoint.

regards,

 

[boaber]

Probably better known as the "pensions time-bomb"

Due to improvements in lifestyle and healthcare, we are all living longer. This will put additional strain on the provision of the state pension. Therefore planning for retirement is essential as the State Old Age Pension may not be enough for you to comfortably maintain the living standards you enjoyed during your working life. What’s more, there is no guarantee of the level of the State Pension in the future

 

[nestegg]

Thanks boaber,

I understand that current demographic trends will certainly effect the provision of State pensions in the future and the obvious benefits of acquiring a 2nd pillar product. However, how can we ensure pension products do not become unaffordable in the future as a result of increased post-retirement life expectancy?

 

[boaber]

However, how can we ensure pension products do not become unaffordable in the future as a result of increased post-retirement life expectancy?

This is the problem really.

You will find that a lot of Employers are either winding up their current DB scheme or asking employees to fund it, because they are becoming more & more expensive to run.

With a DC scheme, you can only try and fund for your max pension under Revenue Rules. But with this, you can aonly assume a fund growth rate, and who knows what annuity rates will be like in 20-30 years time.

 

[aircobra19]

...I haven't thought of any dilemma so far. Maybe if you were in your 20s, and choosing between saving for a house or paying off a mortgage versus saving for a pension, you may face a dilemma?

Why does age matter. I know of a few people who choose to invest, usually in properly rather than a pension, and thus far it seems to have worked out much better. Mind you they decided this 5 or 6 yrs ago, not recently.

 

[boaber]

I know of a few people who choose to invest, usually in properly rather than a pension, and thus far it seems to have worked out much better.

Will these investments provide them with an income in retirement to cover the standard of living they are accustomed to. What if they live to 90 or 100? Will a few propertys cover 30 years or more of not working?

Also, did they get any tax breaks when purchasing the property, or added security of Death In Service benefit?

 

[aircobra19]

Not AFAIK. I wasn't thinking of the tax tbh. Property, bought for between 60-100k and now worth on average 450 each. No mortgages, and rental bringing in about 4k a month. Do you think the tax on income and lack of tax saved on the purchase, brings it on a par with a pension?

 

[GeneralZod]

They seem to be coping alright in the rest of Europe with their older populations and greater dependency ratios. In the UK they're still talking about the pensions time-bomb as a future threat. I suspect there's a strong element of talking it up in Ireland by the pensions industry. I never see them advocate forms of pension saving that they can't charge a commission on. We're not looking at an imminent disaster. Policy makers should have plenty of warning by looking at what actually happens in the more mature European countries.