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You are > Home > Pension plan falls short of public service levels
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Wednesday, June 30, 2010
Pension plan falls short of public service levels
BY DAVID DWANE
TWO thirds of Irish people favour a mandatory pension – that's according to a new report from Standard Life.
But Standard Life's analysis reveals that, on average, public sector workers will be around three times better off in retirement than their mandatory pension counterparts.
This assumes an 8 per cent of salary contribution for mandatory pension savers as proposed by the National Pensions Framework Document.
It is proposed that the contribution by all employed and non-pension owning adults over the age of 22 will be split between employee, employer and state and the government is expected to implement this around the year 2014.
Importantly, the comparison with the public sector is not only vis a vis the existing public sector final salary pension but also against the new proposed average salary defined benefit scheme.
In Standard Life's recent survey of more than 1,000 adults, two thirds of respondents said they favoured the government's recent plan to introduce mandatory pensions.
Almost a million people, or half the working population, could expect to be enrolled in mandatory pensions if the proposed pension policy is implemented.
Just two in 10 said they were against introducing the proposed mandatory pensions and just over one in 10 said they didn't know.
Those aged 35-44 (71%) and 65+ (79%) were more likely to be in favour than those aged 18-24 (59%).
Overall, almost half of respondents thought the government's plan to introduce mandatory pension savings would produce pensions that would be as good as, if not better than, public sector pensions.
Jim Connolly, Head of Pensions at Standard Life Ireland, said that those surveyed do not appear to understand that the mandatory pension scheme, as proposed, is in the “ha'penny place” compared to public sector pensions.
“Private sector workers will need to save significantly more than 8 per cent of their salaries per year to enjoy a comfortable retirement,” he said.
“We estimate that private sector pensioners will be almost three times worse off compared to public servants' pensions, if savers adopt the minimum 8 per cent annual contribution as the benchmark amount.
“In reality, a final salary pension that tens of thousands of public servants have is worth about 23 per cent of their salary per year. That’s roughly (at current projected rates of investment returns) how much an employer would need to invest into a pension fund each year to produce the retirement income required,” he said.
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