Many workers in small defined contribution (DC) schemes in Ireland may not retire comfortably due to low contribution levels, the Irish Association of Pension Funds (IAPF) has found.

According to a survey of 6,430 DC pension schemes in Ireland, 53% of employers of smaller schemes contributed less than 5%.

IAPF CEO Jerry Moriarty said: "This level of funding on its own is unfortunately wholly insufficient and those involved in these schemes should consider either upping the level of contributions or looking at other retirement funding options."

The average total contribution being paid in amounts to just 11.1% of salary, with an average of 5.7% coming from the employer and 5.4% from the employees.

The research revealed that the contribution level of larger schemes varied between 8% and 15%.

However, while there's a growing appreciation of the need to boost total contributions, only 4.5% of larger schemes contribute more than 15% in total, IAPF said.

Moriarty said: "While there has been much publicity around potential cuts in benefits for those in the traditional defined benefit (DB) pension schemes, those employees in DC could face even greater pension adequacy issues; the key difference is that those in DC schemes generally have far greater control over the size of their individual pension pot and the investment options.

"Employees typically make up half of the contributions and many schemes offer matching upgrades where the employer will match additional contribution that the employee chooses to make. As well as an employer contribution, employees also receive tax relief on contributions.

"Late entry to the pension scheme has been an issue in many companies though some employers have overcome this reluctance by making membership of the pension scheme the default option on the first day of employment – thus ensuring that new employees have to actively opt out if they don't want it."

First published 28.05.2014

monique_simpson@wilmington.co.uk