Thursday 21 September 2017

'Massive shortfalls' predicted in pension payouts

Charlie Weston Personal Finance Editor

Many workers who are paying into a pension in the private sector are set to be hit by massive shortfalls in the retirement income they had been expecting.

And the number of people with a defined-benefit pension in the private sector has fallen, but the number with a similar pension in the public sector has gone up, the Pensions Board admits.

Social Protection Minister Joan Burton denied the actions of her department were contributing to the demise of private-sector pensions.

At the end of last year, an extra 7,400 people were signed up to public-sector pensions compared with 2010.

This is despite a recruitment embargo across the public sector at the moment.

This took the total who have a pension in the public sector to 335,551 for this year, according to the annual report of the Pensions Board.

But there was a fall of close to 25,000 in the number of workers in the private sector who have an occupational pension -- down to 436,327.

This is understood to be due to the high level of unemployment and the fact that many people can no longer afford to pay into a retirement fund.

Head of the Irish Association of Pension Funds, Jerry Moriarty, said the fact that the numbers with a defined benefit pension were growing in the public sector raised questions about where the extra numbers were coming from.

A defined-benefit pension is one where the retirement income is based the salary the person is earning when they give up work. A person who has a full 40 years' service and works in the private sector has a promise of two-thirds of their final salary at retirement.

Meanwhile, some eight out of 10 defined-benefit schemes in the private sector are in deficit.

Ms Burton acknowledged that, in many cases, pension incomes would end up being below what was anticipated.

Levy

She denied that government moves to impose an annual levy of close to €500m on private-sector pensions and tough rules for defined-benefit schemes were killing off retirement plans.

Those with a full 40 years' service in the public sector qualify for a pension based on half their final salary and get a tax-free lump sum of one-and-a-half times' their final salary.

However, a pensions levy has been imposed on public servants, which amounts to around 7pc. This is in addition to contributions made by staff but the levy is tax-deductible. This means that in net terms it amounts to around 3pc to 3.5pc for higher-rate taxpayers.

Pensions Board chief executive Brendan Kennedy said the number of active members of occupational pension schemes in April 2012 was 771,878, down 38,083 from 2010 figures.

Irish Independent

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