Workers averse to taking risk in growing pension funds - survey

Only one in three Irish people are confident that their pensions will maintain their expected standard of living in retirement, according to an international survey.

But separate findings in the study show that Irish people are reluctant to take the investment risk required to improve their position. And they also significantly underestimate how long their pension fund is likely to be required.

The study by Swiss researcher GFS was commissioned by the European insurance association, Insurance Europe, of which Insurance Ireland is a member. The biannual pension survey surveyed close to 16,000 people in 15 countries across Europe.

Just one in six Irish respondents said there were looking for investment performance – key to building an adequate pension fund – when they invest in a pension.

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Irish people reported a strong desire for safety rather than high risk in their investment profile, the survey found, with 80 per cent saying they would prefer “the certainty to get back at least what I have invested and possibly an additional sum” over higher returns and the associated risk.

Asked about their priorities when putting money into a pension, the highest number (43 per cent) cited safety, with just over a third going for affordability and 29 per cent saying they were looking at the tax relief available, just ahead of those wanting payment flexibility.

Focusing on the importance of safety, the survey found that close to half of respondents (46 per cent) would be willing to pay more to protect their loved ones in case they predecease them. A similar number (45 per cent) said they were willing to pay more to protect themselves from outliving their pensions.

That points to people opting for a more expensive annuity route in retirement – where you hand your pension fund over to an insurance company in return for a lifetime income. That income is reduced significantly where you are providing for a survivor’s pension for a partner or spouse, and also where the sum paid is inflation proofed.

It runs contrary to the current preference for people who choose to leave their money invested in an approved retirement fund (ARF) when they stop work. Money in these funds is drawn down at the discretion of the pensioner over a certain minimum figure that the State presumes will be required annually and on which it taxes the pensioner regardless. The issue with ARFs is that there is no guarantee that the fund will last over your full life although, on the flip side, anything left will pass to your estate when you die, rather than boosting an insurer’s bottom line.

Assessing the best pension option is made more difficult by evidence in the survey that people are underestimating their longevity. Irish survey participants said they expected to live to 78.7 years. However, current average life expectancy in Ireland is 82.81 years – more than five years longer.

“We need our pension systems to become fit for purpose and fit for the future, ensuring everyone has a good quality of life in their retirement,” Nicolas Jeanmart, head of personal and general insurance at Insurance Europe, said. “The reality is that, looking at the currently complex landscape, people will have to save more for retirement, but not everyone has enough money to do so.”

The survey also found that Irish women continue to have dramatically less pension provision in place than men. Just 34 per cent of women said they had either a workplace or personal pension, compared with 61 per cent for men.

Moyagh Murdock, Insurance Ireland chief executive, said the results “highlight that a widening of the gender pension gap is inevitable if we don’t change the conditions around access to pensions for women”.

She said the desire of Irish workers for safety and flexibility pointed to a need for Government to rethink its plans for mandatory workplace pensions – auto-enrolment – which is scheduled to be rolled out next year, particularly what she called “the complex and burdensome approach around a new and costly Central Processing Agency” to oversee the scheme.

Insurance Ireland says management of auto-enrolment should be run by the private life insurance sector, “one of the most sophisticated life insurance markets in the world”, which was currently being ignored, Ms Murdock claimed.