Another week, another survey finds that people cannot get their heads around the concept of pensions and retirement savings.
A survey by employee benefits and wealth management firm NFP Ireland found that large numbers of adults struggle with even basic details of how retirement savings work. And women tend to be even more confused than men.
Fewer than three in five adults were able to correctly identify the age at which the state pension kicks in (it is 66). Worryingly, more than one in five people over the age of 55 got this wrong.
Just over 40 per cent of people did not understand how tax relief on pension contributions work. Pension contributions get relief from income tax at the higher rate a worker pays. However, almost one in five thought they also got relief from PRSI and USC while 14 per cent thought their employers paid tax on their behalf.
Almost one in 10 thought tax relief only kicked in after retirement.
Fewer than half understood that an allocation rate refers to how much of their pension contribution actually goes into investments in their fund.
Only one in five was aware of the upper limit on the size of a pension fund. That was perhaps not too surprising given the average Irish pension fund amounts to less than a tenth of that €2 million figure.
A depressingly similar number was aware of how much of your salary you can get tax relief on if you put it into a pension at certain ages.
[ What is the auto-enrolment pension scheme and what does it mean for you? ]
Even when it comes to how much you can draw down tax-free from your pension fund when you retire – 25 per cent up to a maximum of €200,000 – fewer than three in five respondents were up to speed with that fairly critical information in terms of planning of their retirement finances.
Overall, with mandatory enrolment into the State’s new workplace pension, My Future Funds, rapidly approaching in January for about 750,000 people, the survey paints a worrying picture on pension literacy in Ireland.
“People are being asked to plan for retirement without fully understanding the most important aspects of how pensions work,” Colm Power, managing director at NFP Ireland, said.
“By the time someone gets to grips with how pensions really work, they may already have issued out on years of compound growth or valuable tax relief.”
Mr Power stressed the need for better education and communication in advance of the arrival of auto-enrolment.
