People should save 20-30% of salary to secure adequate pension – pension expert

Those saving for a pension should make contributions of 20-30 per cent of their salary to secure an adequate retirement income, according to PensioPlus secretary-general, Ann Verlinden.

PensioPlus is Belgium’s pension association and Verlinden made the comments during a panel session hosted by PensionsEurope as part of European Retirement Week, Wednesday 1 December.

“It is very clear that today, a good pension is very expensive. I think for a median income you need to count on contribution rates of 20-30 per cent, or even more, of your salary. Not only during the last five years [of your career] but during your whole career in order to secure a decent adequate retirement income.”

Verlinden noted that this is a lot of money and, therefore, people need help with this so they are encouraged to save early on in their careers and save more.

“I think an individual would not think of putting aside 20-30 per cent of their salary on their own. It’s also important that people save smart; I think funded systems do have the advantages that financial markets, if they give enough return make pensions more affordable. A combination of these three is very important.”

However, she said that there needs to be a good pension system set by policymakers. “A good mix of different pension pillars is essential to make sure that there is enough spreading of risk and that things can happen very efficiently,” she said.

On the subject of saving into different pension pillars, another panellist, Eversheds Sutherlands (Netherlands) partner (pensions), Eric Bergamin, added that no pillar is better than the other.

“I think [there should be] a combination of a first pillar, on a pay-as-you-go basis, and a second pillar on a funded basis. Obviously, there is a risk in the first pillar pension, and that is a political risk, in a first pillar pension you always take the risk that in 40 years’ time there will still be a political system that will hand out a first pillar pension.

“On the other hand, the risk in the second pillar, the funded system, is the risk that the financial markets will develop in a way that is not favourable for you as a pensioner. In a way there is a number of risks that you have to cope with when saving for a pension. It is my opinion that specifically a combination of a pay-as-you-go first pillar and a funded second pillar sort of supplies the perfect risk sharing as the first level of risk combination,” he said.

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