Liam Croke: Apathy will not secure adequate pensions

MANY people I meet are seriously under-prepared for retirement, especially those aged between their mid 40s and 50s. It is my belief that this could be down to a number of factors. In a lot of cases there is simply not enough money left at the end of the month to put into a pension.

MANY people I meet are seriously under-prepared for retirement, especially those aged between their mid 40s and 50s. It is my belief that this could be down to a number of factors. In a lot of cases there is simply not enough money left at the end of the month to put into a pension.

Many people believe that the state will look after them when they retire. The people in the next category believe that putting money into a pension is a waste of time because it is just too risky. They think it is safer to put money into a regular savings account, I feel this is insane to think that this is in anyway a better method to prepare for retirement.

Let’s describe a lack of knowledge or awareness and a lack of motivation or interest in one word - apathy. I feel this is the one word that best describes these feelings and is possibly the single biggest risk to you having a secure financial future.

When I think of a secure financial future, the famous line: “Get busy living or get busy dying - that’s Goddamn right,” from the 1994 film The Shawshank Redemption springs to mind. Wouldn’t it be nice to enjoy a long retirement free from financial worries?

I completely understand having to “live in the now” and the notion the “I can’t bring it with me”. However, that should not be an excuse to not saving for the future. I believe that people who think that way are fearing the worst and all they are doing attempting to convince themselves that it is OK not to save for whatever reason they naively come up with.

Would an education in the world of pensions or the simplification of that world for people help? What about making pensions semi-mandatory? I am not convinced. PRSAs were introduced 12 years ago to help make pensions easier to understand and more portable among others factors, but they have not exactly being a roaring success story.

What we need to do is change people’s behaviour and that starts at a very young age but that argument is for another day.

What if the choice was taken away from a person in whether they needed or wanted a pension? I was trying to come up with some answers and the best I could come up with to absolutely ensure success is if they didn’t even know about it.

And how could you ever hope to do this Liam?

Well you know there is a saying that the minute we are born we begin to die, so is it mad to even suggest that we start a saving/pension fund, call it what you like, for a child who hasn’t even turned 1 and that fund turns out to be their pension when they turn 68?

Stay with me on this for a moment because it is worth considering. We don’t want the next generation to be as under-prepared as this one. We know that things will become worse for them as we know that paying pensions from the social insurance fund is not sustainable. It appears that to bridge that deficit PRSI contributions could be doubled or the level of state pension could be capped or reduced and we know in all likelihood the latter will be the chosen option.

Back to a newly born child. The newborn, whose grandparents are so proud of, and who only wish their grandchild a life of endless possibilities and opportunities along with the wish of better financial luck than they have had. They will hope their grandchild doesn’t have to worry about heating their home or getting while not having health insurance. They will hope their beautiful grandchild doesn’t have to try and live off €230 per week.

Get to the point, Liam! OK – suppose you were to put away €208 per month for the first two years of the child’s life and then stop. No more is saved for that child. Guess how much that child would have when they reach the retirement age of 68 years? They would have amassed just under €500,000 – ah, the magic of compound interest based on an annual return of seven per cent.

This projected lump sum will turn into an annual income in today’s terms of just under €37,000.

So, €5,000 saved in the first two years of a child’s life means an annual income of €37,000 in that very same child’s twilight years. The current state pension by the way is just under €12,000 per year which they might also get along with anything else they contribute during their working life.

Now let’s look at the €5,000 you would need. If you saved the children’s allowance of €130 per month over two years you would have €3,120 of it which is just €1,880 short. Do you think it would be in the Governments interest to top this up for you? Damn right it would be. It would save them a fortune. Over in the UK they used to contribute money to parents to put into a tax free trust fund so why not do the same here?

There were, I believe, 79,000 babies born in Ireland in 2012, how many of them living in the year 2080 will have an income that will allow them to live in a way that is deemed a comfortable existence? How many of them will contribute to a pension? How many will choose to contribute to a pension? How many will be dependent on the state? Who knows? But the chances are not good if today is anything to go by – we have to think a little outside the box here and we need to look at all options and we need at least to give parents the option to put away their children’s allowance into a special trust fund for their child so that the amount set aside for their first two years of life will give them a more than comfortable life in their final 20.