Charlie Weston: Age-old pension worries enough to turn you grey
OFFICE old-timers often like to tease new, raw recruits. "Ah, don't worry," they tell them after their first fraught day in the job, "there are only another 9,999 days to go before you get to retire."
The chances are that anyone telling that rather lame joke in the future will have to add many more days to the figure in the punchline. Because it is looking increasingly likely that the option of retiring on a full pension at 65 is set to disappear.
That is set to be the case for those retiring from a company plan, and those expecting a state pension from age 65.
The news that Bank of Ireland is looking at a radical plan to force its workers to stay on at work until they reach 68 before they can qualify for a full pension is an early warning sign that the retirement age is set to be raised across the board.
Mary Hanafin, the minister with responsibility for pensions policy, is expected to announce government plans on Wednesday to change the retirement age. Currently most occupational pension schemes allow workers to retire at the age of 65, while the state contributory pension is paid from age 66. A state transition pension is paid from 65 years for those who retire before they reach 66.
Finance Minister Brian Lenihan said in December's Budget speech that future public servants would not qualify for a full pension until the age of 66. A new pension scheme for the next generation of public servants is to be announced this year, he said.
Ireland isn't alone: countries around the world are looking at altering the retirement age.
Historically, the concept of a mandatory age for retirement has its origins in 19th century Germany, which was the first country to introduce a state-funded retirement pension in 1889. Otto von Bismarck set the retirement age at 70. Years later this was dropped to 65 at a time when the average life expectancy of a German male was 72.
Fast-forward to today in this country where the average male will live to 77 and the average woman to 82, according to the Central Statistics Office.
Bank of Ireland has said in a pensions briefing document for staff that people are living on average five years longer than they did 30 years ago. Blame advances in medical technology and retreats in investment markets.
Advances in medicine mean children born today have a 50pc chance of living to 100.
Of course, it is great news that we are all living longer, but it is becoming increasingly difficult to fund a long retirement. And traditional stock-market invested pension funds have demonstrated comprehensively recently that they have no chance of funding a long retirement.
Irish private-sector pension funds were the worst performing in the world in 2008, crashing by 35pc in value, according to the OECD (Organisation for Economic Co-operation and Development).
What this means is that the cost of providing every €1,000 a year in pension payments has shot up from €18,000 in 1999 to €30,000 now, according to the Bank of Ireland pensions briefing. In other words, you now need a pension pot of €30,000 for every €1,000 a year in pension payments.
That is why the bank closed its defined benefit plan to new members in 2006. That is the scheme where it promises to pay a pension of up to two-thirds of final salary for those with full service.
Also coming down the tracks for those with private-sector pensions is a cut in tax relief for anyone paying tax at the higher 41pc rate.
With retirement set to be put off until later in life, pension-fund returns being totally inadequate, and with a cut in pension tax reliefs looming, there is little cheer for those saving for retirement.
All of this is enough to force any rational person to question why anyone should bother investing in a pension at all.
However, if you do have a job in the private sector and you can fund a pension plan, then you should. The alternative is to live on €230 a week, which is the current state contributory pension payment.
Even if you have to wait until the age of 68 to get that, you might well conclude that it is not enough to fund a comfortable retirement.