Cantillon: Sleepwalking into a crisis

For the vast majority, pension income will determine the level of comfort, financially, that they enjoy in retirement. Failure to plan prudently means people may find themselves relying solely on the State pension. At its best, that offers an income of just under €12,000 per person, assuming a full record of pay-related social insurance over a working life.

As a growing proportion of the population moves towards retirement and lives longer, the pressure on the exchequer to fund these State pensions is increasing all the time. In Ireland, as elsewhere, there is no guarantee that this can be afforded by the State down the line.

That explains the pressure in Ireland and elsewhere to improve the coverage and adequacy of private pension income.

But private pension arrangements require active engagement from scheme members. This is especially so with defined-contribution schemes – the only option for the bulk of those in the private sector.

Missing from the argument about future pension adequacy has been some assessment of how aware people are of the arrangements. The publication by a team from the ESRI and Trinity College Dublin of research drawn from The Irish Longitudinal Study on Ageing (Tilda) is scarcely reassuring.

How Well-Informed are Pension Scheme Members on Their Future Pension Benefits? Evidence from Ireland finds that, by and large, people are not well informed at all. Two-thirds of respondents either did not know how much they could expect to have to live on in retirement, or how it would be paid, or both. Worse, the cohort in the study was aged over 50, an age at which one would expect some serious engagement on the issue of pensions.

The level of ignorance on such a critical issue must be deeply worrying for government. The fear is that a generation of workers is sleepwalking into relative poverty in old age, putting pressure on the State at a time when it will be less likely to be in a position to afford it.

The authors urge caution on other governments considering following the “voluntary” private pension model employed in Ireland and Britain. The arrival of mandatory occupational private pension saving seems increasingly inevitable.