First of all, we recognise that pensions may not be the most exciting topic in the world! However it’s an extremely important topic. After all, your pension may be the single biggest financial commitment of your life. For some people this is their mortgage, for others it’s building up a pension fund over many years.

Pensions have featured a lot in the news recently. We’ve seen issues with some older style “Defined Benefit” schemes, where funding issues have arisen. We’ve also seen a lot of coverage about the “pensions time bomb” and the implications of this.

The CSO is projecting that the number of people aged between 20 and 64 will increase by approx. 6pc to 2.96 million by 2046 but that the number of over-65s will almost treble to 1.41 million. As a result, we will go from a situation where there are more than 5 people of working age for every pensioner to one where there will be just over 2 people of working age for every pensioner.

So what can be done to defuse the pensions time bomb? The implications of hundreds of thousands of retired private sector workers relying on the state pension for the bulk of their income doesn't bear thinking about.

The likelihood of state pensions improving is nil, indeed we’ve seen recently that the government are now talking about building reductions in pensions payable to state employees into future wage agreements. We’re also unlikely to see any improvement in old age pension rates, as they are simply unaffordable. We’ve also seen the age at which state pensions are payable pushed out from 65 to 68 for anyone retiring after 2028.

At the moment, the future state liability for public servant pensions and the shortfall in the Social Insurance Fund that is used to pay old age pensions is €440bn. A very big number, particularly when you consider that our national debt is (only?) €208bn.

It’s not a rosy picture. The bottom line is, we need to take ownership ourselves of our own retirement planning.

So what’s happening in pensions today to help us all take more ownership?

Generous tax breaks continue
Pension saving continues to attract significant tax breaks, as the government needs to encourage people to save for themselves. Employers can offset contributions against their profits. Individuals can claim relief at their marginal tax rates. This is likely to continue to ensure people keep saving for retirement.

Employers have an important role too
Employers are an integral part of the solution. Apart from the tax advantages for them, many employers recognise the really important role that pension schemes play in recruiting and retaining staff. In fact the introduction of auto-enrolment is fast approaching, where employers will be obliged by law to include their employees in a pension scheme. This is the system used in many countries, and was introduced in the last few years in the UK with good success. It is inevitably part of the overall pension solution in Ireland.

We’ll see different types of schemes in future
A recent report from the Pensions Authority revealed that Ireland has more pension schemes than any other country in Europe! Even though some of these countries have 20 times our population. This makes no sense from an efficiency and cost point of view. We’re going to see a move towards “Master trust” arrangements, where there is an umbrella scheme, which lots of employers can then join and even personalise their own arrangement to suit themselves. The good news for construction firms is that these schemes are already in place in your sector, as both the Construction Workers Pension Scheme (CWPS) and Construction Executive Retirement Savings (CERS) are both master trust schemes.

External trustees
There’s also a belief of the Pensions Authority that lots of employers acting as trustees of their company pension schemes is a flawed model. Many employers are not equipped with the necessary skills to be effective trustees. Worse still, some can end up conflicted between the rights of pension schemes members and commercial pressures they may be facing in their business. We will see a further move towards the establishment of independent, professional trustee boards. Again for the construction section, there’s more good news. Both CERS and CWPS operate under this model already!

We all need to take more interest
Members cannot sit back and let their employers sort it out. Members need to understand the investment options that are available to them. While you may be in a “default” fund, is this the right fund for you? If you are in a property fund, is this right for you as these funds face liquidity challenges from time to time – will you be able to exit the fund when you want to? How will you maximise your tax-free lump sum at retirement and access the rest of your fund? These are all questions that need careful consideration.

The bottom line is - the pension system is constantly evolving. Keep an eye on these developments to ensure you build a retirement that you will enjoy.

Do contact your normal CERS or CWPS contact if you wish to discuss our own retirement savings plan!

Frances McNally