Young workers miss out on pension pot millions
Published 16/04/2014 | 02:30
YOUNGER workers are missing out on millions of euro by failing to sign up to pension plans where the employer makes a contribution.
A survey of 3,000 workers in their 20s and 30s has found that they are losing out on an estimated €80m a year.
This is the amount of money their employers would stump up if they opted into the company's defined contribution scheme, according to the survey by pensions advisers Mercer.
Seven out of 10 of the under-30s are spurning offers from their employers to help them fund a pension.
They are effectively passing up the opportunity of free money by failing to sign up for a retirement scheme part-funded by their employer, the research found.
Employers are paying, on average, 7.2pc of pensionable salary for those willing to sign up for a defined contribution scheme. With such schemes, the annual pension depends on the amount contributed to the plan and the investment growth once the fund is converted into a pension at retirement.
Mercer's analysis indicates that many younger employees are forsaking as much as 10pc of their salary each year by not participating in their company pension scheme.
Younger people do not see a pension as important and instead prioritise spending in other areas.
The €80m from employers, combined with employees' own own contributions, would grow each year to €750m by the time of retirement, head of defined contribution pensions at Mercer Niall O'Callaghan said.
He said that the Government should take the issue of non-participation in defined contribution pension schemes by employees who are under the age of 30 very seriously.
"These findings should be of significant interest to Government, as these contributions foregone will leave a significant hole in people's retirement funds in 40 years and will increase the strain on government finances as our population ages," said Mr O'Callaghan.
Mercer's research indicates that inertia is the main problem, rather than affordability.
In pension schemes where members have to opt out, as opposed to choosing to join a scheme, some nine out of 10 younger employees stay in the plan, Mercer said. And most maintain the top level of employee contribution. The Government has said it intends to introduce a new mandatory occupational pension scheme. It has come up with a name for it but has not given any date for its implementation. The new MySaver scheme is designed for those without any pension in place other than the state pension, Minister for Social Protection Joan Burton said recently.
She said less than half of those in a job, between 20 and 69, have a private pension.