6 ways to fail in pension planning

One quarter of adults surveyed are clueless on retirement income

30th September, 2016
Mind the gap: those surveyed expect their cost of living to halve in retirement. Pic: iStock

Stark new figures reveal that one in four adults don't know what the state pension provision is worth.

The startling knowledge gap, revealed in the Friends First 2016 Pension Index, arises even though half the adult population will be entirely dependent on a state pension for their retirement income.

And a full three quarters of those without a private pension are not confident of having sufficient income at retirement.

The survey reveals several pension planning fails:

1) One third prioritise short- to medium-term saving over retirement provision

2) Pension planning comes in behind holiday costs and home improvements for, respectively, 15 per cent and 25 per cent of those surveyed

3) Only 36 per cent place high or medium priority on obtaining a pension but 45 per cent still say affordability is the main barrier

4) A mere 30 per cent believe they could live comfortably on the current state pension

5) Half of those surveyed saw an uplift in household income in the past year, mostly through wage increases

6) Retirement optimism is highest amongst 25-34-year-olds, with a full 38 per cent of this cohort confident they can maintain their current lifestyle on the state provision.

Private pension ownership remains steady at 45 per cent with contributions mostly remaining static.

The Friends First 2016 Pension Index conducted a comparative pre- and post-retirement cost-of-living analysis revealing that:

- People expect their cost of living to halve when they reach their golden years

- The average cost of living of €19,865 now (€380 per week) is expected to reduce to €9,810 (€188 per week) in retirement

- The one in two dependent on the €230 per week state pension will have a disposable income of just €40 per week.

- Most expect health costs to increase from €729 to €982 annually.

- Those with a private pension over-estimate the income their current funding will provide, with a €2,946 annual contribution expected to yield a whopping €19,666 a year.

Simon Hoffman, Friends First pensions and investments director, said “Our research has highlighted two real issues which we urge people to address.

"There is a huge gap in knowledge when people are setting out their pension goals, with many looking at unrealistic expectations as to what their contributions will deliver.

"And there needs to be a greater understanding of the role the state pension plays in an individual’s overall pension planning.

“We are seeing that people are living increasingly busy lives and their focus is less on securing their financial future and more on short- to medium-term needs.

"But sleep walking into retirement can only lead to a rude awakening” he pointed out.

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