More people need to be encouraged on pensions (Irish Independent)

04 November 2011

The Pensions Board needs to up its game to encourage more people to take out pensions and to ensure that those who do take them out are paying enough into them.

The board launched its annual report recently with a small event for those who have an interest in the pensions landscape.

As they tucked into lunch, those at the event will have been only too aware that more than one million people in this country have no private pension. This figure represents nearly half the workforce.

The big idea to get more people to take out pensions was the introduction of PRSAs (Personal Retirement Savings Accounts).

PRSAs are flexible pensions with capped costs and were introduced to boost pensions coverage among those who did not have a private pension.

According to the annual report of the Pensions Board, the number of PRSA contracts stood at 130,709 in 2007. The value of these assets amounted to €1.25bn, an increase of 50pc compared with last year.

Chief executive of the Pensions Board Brendan Kennedy was unable to say how many PRSAs were being taken out by existing pension contributors and how many were taken out by people with no pension.

However, a recent analysis of PRSAs by Tony Gilhawley of Technical Guidance Ltd showed that only one third of PRSAs are being taken out by people who do not already have a pension.

But Mr Gilhawley's analysis of the sales of the flexible pensions shows that two thirds of PRSAs are being sold to people who have a pension, with the self-employed identified as big buyers of PRSAs.

Many people who already have a pension use a PRSA to make Additional Voluntary Contributions (AVCs) to their pensions pot.

The other big problem with pensions in this country is that defined benefit, also known as final salary schemes, are being phased out and the vast majority of people who take out a pension now are being offered defined contribution schemes.

That in itself is not a problem except that the contribution levels by employers tend to be much lower than employers tend to pay into defined benefit schemes. And employees in defined contribution schemes are only contributing half of what they should be to secure a decent pension.

The Pensions Board needs to do more to tackle these issues.