How living longer can impact your pension pot

People frequently underestimate how long they are going to live for in retirement. In Ireland, and across the developed world, we are seeing an increase in life expectancy that has significant implications for pension systems. As people live longer, they spend more years in retirement, necessitating larger pension pots to maintain their standard of living throughout these extended periods.

Life expectancy in Ireland has seen a significant increase over the past few decades. The current life expectancy in Ireland in 2024 is almost 83 years, a 2.5% increase from a decade prior₁.

Specifically, women in Ireland typically live longer than men, with an average life expectancy of 85 years, while men have an average of 81 years.

Also, in Ireland, male life expectancy is consistently higher than the EU average throughout the last decade, and female life expectancy surpassed the EU average in 2017 and has remained higher.

While Ireland is often spoken about as a country of young people, the over-65 population has grown by 35% over the past ten years – more than three time the rate of growth in the overall population and faster than elsewhere in Europe.

The number of people in the over-65 age group is expected to almost double in the next 20 years, with the greatest proportional increase in the over-85 age group. Much of this has been achieved through fewer deaths from heart attacks, stroke, and cancer.

What does this mean for your pension pot?

Defined Contribution pension plans are intended to provide individuals with sufficient financial means to be able to retire and to maintain a certain and adequate standard of living throughout retirement.

A longer life expectancy has significant implications for your pension pot, introducing several risks that need careful management to ensure financial security throughout retirement.

1. The primary risk is longevity risk, where you might outlive your pension savings. With retirement potentially spanning several decades, a larger pension pot is necessary to sustain the same lifestyle over a longer period.

2. Additionally, inflation can significantly erode the purchasing power of your savings, making it more challenging to cover living expenses, especially healthcare costs, which tend to rise with age.

3. Furthermore, investment risk is a concern, as longer time horizons expose your pension pot to more market cycles, including potential downturns. Individuals need to balance the savings they make over the course of their working life with the cash flows they require throughout their retirement.

What actions can you take to retire comfortably?

Save more: To mitigate the risks associated with a longer life expectancy and to ensure that your pension pot lasts throughout retirement, increasing your contributions to your pension plan is crucial.

One effective strategy is to maximise your savings by contributing as much as possible to your pension plan. Individuals should consider increasing contribution rate when receiving a salary increase or a bonus. This approach allows you to save more without feeling a significant impact on your take-home pay.

By increasing pension contributions, you can significantly enhance your pension pot and better prepare for a longer life expectancy. Maximise your pension contributions by using our handy Maximum Pension Contribution Calculator.

Manage investment risk: Most pension savers with Zurich will be invested in Personalised GuidePath, the default investment strategy for the Zurich Master Trust. De-risking: Personalised GuidePath gradually transitions investment into lower-risk multi-asset funds as retirement approaches. The strategy reduces exposure to high-volatility assets over time and increases allocation to lower-risk assets such as bonds and cash equivalents, preserving capital and reducing potential losses close to retirement.

Diversified: The Personalised GuidePath strategy is built on our risk targeted range of Prisma multi-asset funds. These funds diversify investments across various asset classes which smooths returns and provides more stable growth. The diversified approach is more likely to ensure a steady income stream, reducing sensitivity to market downturns, and is crucial for maintaining savings over a longer retirement period as life expectancy increases.

Growth oriented: Additionally, Zurich’s Prisma funds optimise returns for a given level of risk while maintaining some growth-oriented investments to combat inflation and protect purchasing power. The Personalised GuidePath strategy provides piece of mind by strategically allocating, ensuring that you can focus on enjoying an extended retirement.

Get in touch

For over 40 years, Zurich has been providing retirement solutions and today, we are one of the largest pension companies in Ireland. When it comes to your pension, it pays to get expert pension advice. Speaking to a Zurich Financial advisor or your own financial broker will be helpful when taking the next steps towards your pension planning.

The Zurich Master Trust leverages our experience, expertise, innovation, and dedication to scheme governance to provide you with a pension scheme that is streamlined, providing peace of mind for scheme members.

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at August 2024 and may change in the future.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

Sources:

₁World Bank Group, 2023

₂Investment Excellence Award, Brokers Ireland, 2014, 2015, 2016, 2017, 2018, 2019, 2021, 2022, 2023. No awards held in 2020. Pension Provider Excellence Award, Brokers Ireland, 2023, 2022. Fund Management Company of the Year 2023 Award, Business and Finance Financial Services Awards. Life Assurance and Pensions of the Year, InBUSINESS Recognition Awards, 2024.

₃Zurich, 30th June 2024.