IRELAND - Members of defined contribution (DC) schemes need to more than double their contributions to ensure an adequate retirement, according to the Irish Association of Pension Funds (IAPF).

Research presented at the IAPF's first DC conference by the UCD Michael Smurfit Graduate Business School, revealed the average contribution to a DC scheme totalled 11%, with 5% from employees and 6% from employers.

However, Rachael Ingle, chairperson of the IAPF DC committee, warned contributions should be "more than double this" on average, in order to secure an adequate income in retirement.

She said: "A 35-year-old starting a pension today would need contributions of 25% to ensure an income of 50% of salary at age 65. This would be in addition to the State pension."

That said, despite concerns over how pension fund returns would be affected by recent volatility, particularly in DC where the investment risk falls solely on the member, Dr Leonie Bell, from Oxera, said the probability of being worse off with equities over a 20-40 year period is very low.

She said: "While we cannot predict the future, over 100 years of research finds that over a long investment horizon equities provide a significantly higher average return for a very small probability of being worse off compared to other, ‘safer', investments."

As a result, she argued DC schemes have "many advantages" over DB schemes, which are "not commonly recognised", as Bell highlighted recent research suggesting "criticisms of DC schemes are often unfounded, as the risks associated with them are overstated while their advantages are downplayed".

Jerry Moriarty, director of policy at the IAPF, agreed DC pensions are often "unfairly tagged" as being "inferior" to DB schemes, despite the fact that in Ireland there are now more private sector workers in DC schemes than in DB.

The IAPF said membership of occupational DC schemes had increased by 87% since 1999 to 270,000, and added if the self-employed and members of Personal Retirement Savings Accounts (PRSA) are also counted, then more than 650,000 Irish workers are reliant on DC schemes.

However, Moriarty said it could be argued DC schemes are better suited to the current working environment than DB schemes, as employees are "far less likely" to stay with one firm for 30-40 years.

He said: "Employees who spend shorter periods in individual firms are likely to be better off in a DC scheme as they are more portable and the transfer value of a DB scheme would be lower.

"It is not the framework that makes the difference rather the contribution levels being paid. There is no such thing as a pensions ‘free lunch'. The contributions will always drive the benefits," added Moriarty.

As a result, he told delegates, employees need to "take more responsibility" for ensuring they are "making sufficient savings for the type of retirement they want", however he admitted the communication of pension issues "needs to be clearer" so employees can get a good understanding of the types of decisions they need to be taking.

"It is especially important in the current economic environment that pension saving is not viewed as a luxury that can be cut back. When we all get to retirement it will be an absolute necessity," he said.

Patrick Burke, chairman of the IAPF, warned in February introducing  mandatory second pillar of pensions saving, could "exacerbate" the problem of low contribution rates and could "undermine" current adequacy levels. [See earlier story: IAPF favours SSIA over mandatory approach]

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email