Cashing in pension early hits long-term security
CASH-strapped workers who lose their jobs are being forced to cash in their pensions at low values, pension experts revealed yesterday.
Doing this will leave them short-changed when they come to retire, John McGovern of IFG Corporate Pensions said.
"We would strongly urge pension-holders to consider the longer-term implications of these decisions.
"While we can understand the predicament that many people find themselves in, they need to be mindful that they are undermining their longer-term financial security," Mr McGovern warned.
Only those over the age of 50 or those who have been in a pension fund for under two years can cash in a pension, he added.
The warning was issued after new figures from the Irish Association of Pension Funds (IAPF) showed that workers who have individual pensions, and are still in a job, have been putting less money into their funds in response to the economic downturn.
The IAPF said Irish pension funds regained some ground last year, but are still well below a peak reached in 2007.
The association said the value of pension fund assets grew by 13.6pc to €72.2bn last year, but this was almost 17pc below the peak of €86.6bn reached in 2007.
More than two-thirds of the €72bn is managed on behalf of defined benefit schemes. This rose last year -- a sign that defined contribution payments are falling, the IAPF said.
The figures show that 64.3pc of defined benefit assets are in shares, compared with 58.7pc in defined contribution schemes.
Defined contribution pension members have a much higher proportion of assets in cash -- 12.5pc compared with 4.3pc for defined benefits.
Director of policy with the IAPF, Jerry Moriarty, said: "This suggests that DC members, stung by losses in pension fund values, remain reluctant to invest in equities."
"The downside of this is that if equity markets continue to recover in 2010 as they did last year, they will lose the benefit of this upturn," he warned.
Meanwhile, the Pensions Board has given an extension to the trustees of defined benefit schemes that are in deficit to submit proposals on how they plan to plug the deficits.
This extension allows schemes to take into account the recently implemented regulations that permit the raising of the normal retirement age under the Pensions Act with immediate and retroactive effect.
The extension will also allow scheme trustees and employers to consider the effect of the proposed changes in the National Pensions Framework.