Affordability Perceived as the Main Barrier to Pension Saving

Lack of financial means is preventing many non-pension savers from retirement planning. This is according to a survey of over 1,000 adults throughout Ireland, commissioned by Royal London. The survey sought to gain insight into the barriers surrounding pensions saving in Ireland.

According to survey participants, the main reasons why people do not have a pension were:

—  ‘I can’t afford to contribute’ (43%)

—  ‘I plan to start a pension in the future’ (29%)

—  ‘I would rather save money into other savings/investment products’ (19%)

—  ‘I’ll receive the State pension and believe that’s enough’ (17%)’

Mark Reilly, Pensions Proposition Lead at Royal London, spoke of the findings,

“The survey highlights affordability as the number one barrier to pension saving for 43% of our respondents who didn’t have a pension. This shows the need for State agencies and providers to address the affordability issue through education and greater engagement. It’s hugely important that rather than simply see a pension contribution as just another outgoing that must be met each month, people realise that this money is to support their income in retirement.

“Too many people assume that the State pension will take care of them in retirement, but with the number of retirees set to mushroom over the next few years, it’s no longer a certainty that it will remain at current levels. Similarly, too few are aware of the immediate and long-term tax benefits of contributing.

While people might know that there is tax relief, my sense is that many simply don’t know how it works or more importantly how beneficial it is. For example, if you are on the higher rate of income tax then for every €10 invested you get €4 in tax relief, which means your ‘net’ cost is just €6.

A recent report from the CSO* aligns with the Royal London survey, finding that affordability of pensions was one of the main reasons for people not having pension cover. The CSO data also highlighted the fact that it’s our younger workforce who are underprovided for to the greatest degree.

Other highlights from the Royal London survey included:

—  40% of those with a pension were encouraged to start it by their employer/company they work for, while 20% said it was because they felt it was the “right time in their life”.

—  Only 3 in 10 people with a pension think they will have enough in their pension to fund their lifestyle when they retire.

—  Of those who have a pension, most started saving before they were 30. The most common reason for this was either their employer having had a work scheme they could join with generous contributions (25%), or that their employer simply encouraged them to do so (40%).

Mr Reilly observed,

“Just 20% of respondents said, ‘it was the right time in their life’, compared with 40% who said that starting their pension was due to employer encouragement. This shows the major impact employers can have on people beginning their pension savings. These results point to the fact that outside influences can have a key role to play in pension decisions.”