New retirement index warns Irish savers over pension shortfalls

New Prime Retirement Index from FPSB Ireland sets pension savings targets for Irish workers, including a goal of 11 times salary by age 65.

FPSB Ireland has launched a new retirement savings benchmark designed to help Irish workers identify potential gaps between what they have saved and what they may need in retirement.

The Prime Retirement Index (PRI) sets age-related targets for retirement savings, starting at one times annual salary at age 35, rising to three times salary at 45, seven times at 55 and 11 times salary by 65.

FPSB Ireland (Financial Planning Standards board Ireland DAC), which sets and upholds professional standards for financial planners in Ireland and represents 1,100 CFP professionals, said the index is intended to give savers and financial advisers a consistent starting point for retirement planning conversations.

The PRI is supported by founding sponsors Zurich, Royal London, New Ireland and Standard Life. According to the notes accompanying the launch, the sponsors have no role in setting its methodology, assumptions or milestones.

Majority feel unprepared for retirement

Research from FPSB Ireland found that while 74% of respondents say they manage their day-to-day money well, 79% feel financially unprepared for retirement and 52% worry their savings will not last.

The PRI aims to make potential savings gaps easier to identify using three inputs: a person’s age, salary and existing retirement savings.

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Under the benchmark, the target at age 65 is retirement savings equivalent to 11 times annual salary.

An illustrative saver earning €65,000 would therefore have a target retirement pot of €715,000. At a 4% drawdown, this would generate €28,600 in annual income. When the State Pension of €15,500 used in the example is included, total retirement income would be approximately €44,100.

A €14,300 annual retirement gap

FPSB Ireland illustrates the challenge through the example of a 41-year-old earning €65,000 with €70,000 in retirement savings.

That represents 1.1 times salary, compared with a PRI benchmark of 2.2 times salary for that age, putting the saver at 50% of the target.

If that saver remained at 50% of the PRI target through to retirement, the example calculates total annual income of approximately €29,800, including the State Pension. That would leave an annual shortfall of €14,300 against the full target.

All income figures in the PRI examples are illustrative, before tax and in today’s money.

Starting earlier improves the picture

The analysis also examines what could happen when a saver identifies a shortfall at different stages in their working life.

A saver starting at age 35 with 50% of the PRI target and increasing total contributions to 14% of salary reached the target by age 65 in 99% of historical scenarios tested, without an additional lump sum.

The proportion fell to 52% when starting at age 45 and 22.5% when starting at 55.

The 14% figure refers to total annual contributions combining employee and employer contributions. The projections are hypothetical and the historical tests are not guarantees of future outcomes.

The PRI also considers a hypothetical 50-year-old earning €90,000 with €153,000 in retirement assets. At that point, the saver has reached 34% of the benchmark for their age.

Increasing total contributions to 14% produces projected retirement savings equivalent to 5.4 times salary at 65, compared with the PRI target of 11 times salary. The analysis says a lump sum may be needed to close the gap.

‘Having a pension does not automatically mean you are ready’

Emer Kirk, CEO at FPSB Ireland, said the purpose of the index is to make potential retirement gaps visible while savers still have time to consider their options.

“Nobody should get to their 50s and discover for the first time that the pension they have spent years building may not provide the retirement income they expected. The central message from this analysis is that timing matters. A gap that may be manageable earlier in your career can become significantly more difficult to address as retirement gets closer.

“The Prime Retirement Index has been developed to make that gap visible earlier. It gives savers and financial advisers a simple way to understand where somebody stands for their age and whether a fuller conversation about retirement planning may be needed.

“Having a pension does not automatically mean you are ready for retirement. The call to action is not simply to save more, but to know where you stand. The earlier a potential shortfall is identified, the more time there may be to understand the options available, make informed decisions and, where appropriate, seek professional financial advice.”

Turning retirement awareness into action

FPSB Ireland said a shortfall against the age-related benchmark can provide a starting point for reviewing expected retirement income, existing savings and potential changes to a retirement plan.

Those options may include increasing contributions, adding a lump sum, reviewing investment strategy, using other assets or changing retirement timing, depending on individual circumstances and financial advice.

The PRI is described as a general educational, population-level benchmark and not individual financial, pension or investment advice.

The Prime Retirement Index was created by Kevin McConnell CFA of GEM Strategic in collaboration with FPSB Ireland as the financial planning professional standards and educational partner in Ireland.

Image at top: Alan McCarthy, Standard Life, Kevin McConnell, GEM Strategic, Kristen Foran, Zurich; Emer Kirk, CEO of FPSB Ireland; Joe Charles, Royal London Ireland and Joann Hosey, New Ireland Assurance