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Personal Finance

Almost 50% of people don't fully understand how pensions work

Daragh Cassidy

Daragh Cassidy

Head Writer

That’s according to new research commissioned by Bank of Ireland.

Pensions are a fantastic idea that you can't take seriously early enough. 

They are a great way of gaining financial security and protecting your future. But they don't just make sense for that reason alone; pensions are extremely tax-efficient as any money that you save into a pension is exempt from income tax up to a certain limit. So as well as providing for your future, pensions allow you to give away less of your hard-earned money to the tax man. A real win-win. 

So you’d think that most of us would therefore be fairly up-to-speed with how pensions work, right? 

Wrong! 

According to new national research on pensions commissioned by Bank of Ireland, almost half of us don’t fully understand how pensions work.     

What’s more, almost 70% of people aged between 25 and 34 have yet to start their own personal pension, rising to over 80% for those aged 18 to 24. 

This is worrying given that the State pension, at less than €250 a week, won’t be enough for most people to survive on. What's more, as the population of Ireland gradually ages and strains on the system increase, there’s a real fear that the State pension in its current form may not be around when those of us under 50 eventually retire! This means having adequate private pension cover is more important than ever.  

What else did the survey say?

The nationwide poll, carried out in October amongst 1,000 adults in Ireland, also found that: 

  • 35% of respondents believe that they have sufficient funds in their pension pots to allow them enjoy a comfortable retirement, in contrast to 33% of those surveyed expressing fears about having started their pensions too late. 
  • 83% of those surveyed think that people with no pensions in place should be allowed remain in the workforce after retirement age. 
  • On the issue of auto-enrolment into pension schemes, 72% of respondents want the Government to introduce mandatory pension savings for all Irish workers aged 18+, a notable figure given the latest Government moves on the issue.   
  • 8% more males than females have a pension and make regular contributions. Despite the gender disparity in pension ownership, women (€261) make a higher monthly pension contribution than men (€254), with €257 being the average monthly amount contributed.
  • Over two thirds of pension holders are fully aware of the current value of their pension, with 40% confident that their current pension provides them with the best return on their investment. 

    For those who don’t yet have a private pension, the following were given as reasons:

    • 26% say they can’t afford one
    • 23% cite the cost of supporting a family as the reason for not starting one
    • 18% believe they're too young to start paying into a pension
    • 17% of respondents admitted they don’t know enough about how pensions work

    Bernard Walsh, Head of Pensions and Investments, for Bank of Ireland said: “Bank of Ireland carried out this research to get a clearer view of the pensions landscape, and to better understand the reasons people save for the future and the barriers preventing them from doing so. What’s clear from the research is that there is a general lack of understanding of how pensions work, on what people need to do to set one up and how to achieve a better outcome. As an industry, we clearly need to get better at explaining how pensions work. Bank of Ireland has invested heavily in a Financial Wellbeing programme, making a commitment to help customers thrive by enabling them to make better financial decisions for themselves and their families."

    The Financial Wellbeing Programme Bernard is referring to is the €5 million plan of activity over the next few years in schools and centres nationwide, launched by the bank back in March, which aims to help improve people's financial literacy, capability and confidence.

    “While a good proportion of respondents have started their pension within a good timeframe, a similar number feel they may have started too late. Our message is that it’s never too late to start a pension and even small amounts which are increased over time can make a difference to your retirement. At this time of year it pays to think about starting a plan or modifying your existing one, and I would encourage anyone thinking of doing so not to put it off any longer,” Bernard adds.  

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