Workers 'paying thousands more than necessary into retirement funds'
Published 01/08/2016 | 02:30
The chairman of the Pensions Authority has warned that workers are paying thousands more euro for their pensions than they need to because they are members of small schemes.
David Begg's comments come after a new report revealed that Ireland has more small and single-member schemes than any other country in Europe.
There are over 160,000 occupational pension schemes and these include frozen schemes and additional voluntary contribution arrangements.
"The difficulty is that the huge number of small schemes - in which 99pc have a lot less than 50 members or are personal individual schemes - don't get economies of scale," said Mr Begg (pictured below). "People are paying more than they need to."
He said the savings that could be made might amount to tens of thousands of euro, depending on the contribution.
In a recent report, the Pensions Authority highlighted the need to drastically cut the number of pension schemes, as it is concerned that smaller ones have less buying power. Schemes with more than 500 members have been shown to have lower annual management charges, lower policy fees, greater instances of employers meeting the costs of policy fees, and less likelihood of exit penalties.
The authority is trying to simplify the pensions landscape by cutting the number of schemes ahead of the rollout of a new universal pension scheme.
It is proposing that retirement annuity contracts (RACs) and buy-out bonds (BOBs) are dropped and personal retirement savings accounts (PRSAs) should be the single option for new contract-based arrangements. Despite the high costs and the fact that many workers got stung by huge deficits during the economic crisis, they are being urged to make contributions.
Social Protection Minister Leo Varadkar said a new universal scheme is a priority because of an impending crisis in the State pension due to a growing number of retirees as people live longer. He has suggested that workers could set aside part of their pay rises or universal social charge refunds to pay pension contributions.
The latest figures show that the portion of workers aged 20 to 69 with pensions has fallen from almost 56pc of the workforce with a pension at the end of 2005, compared with almost 47pc at the end of last year.
Unite said many workers have been put off as others were badly stung, although many are not members simply because their employers do not have a scheme.
The union's regional coordinating officer, Richie Browne, said there are workers who have been working for the last 30 years, are 55 years of age and haven't made a pension contribution.
"Effectively, it's too late for them," he said.