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Pension Adequacy – Will I have enough when I Retire?

Pension Adequacy – Will I have enough when I Retire?

Pension Adequacy – The First Step

Start your pension as early as you can! Once started, let’s sit down and think about your number. How much do you need to live the life you want in Retirement? Let’s be realistic and aim for a comfortable retirement.

People tend to get lost in the pension planning fog! They feel pension planning is complicated and they don’t understand that it can be quite simple. 

So let’s make a complicated thing simple!

 

What is your number?

How much do you want in your fund at age 50, at age 60, and 80?

I ask my clients to list out their retirement goals, what items can they live without in retirement. This could be their annual holiday, their tv subscription, or their usual weekly night out. I ask them to review their goal as time goes on and indeed priorities change. It is healthy to review these goals as it reminds people why they are saving for their retirement.

The state pension is the foundation to build from. It is important to note that this state pension cannot be relied on as the only income stream at retirement.

 

Sample Pension Planning:

An individual retired recently on a final salary of €35,000. This client is entitled to the full state pension of €12,912 per annum. This is 37% of their final salary.  

Another individual’s final salary was €50,000. The OAP is only 26% of their salary. Is it enough? This is the reason why everyone should consider starting a pension plan.

35% of people in private employment have a pension in place. This is a significant problem especially as there are changes to when we qualify for the OAP. The concept of pension adequacy refers to the pension pot one has built up and if that pot will provide a pension that matches one’s expectation. Can they live the life that they want?

 

2 main factors to Pension Adequacy

1. Pension Contributions
The more you pay into your pension throughout your working life, the more you can expect to have in your pot when you retire. The role of tax relief here is paramount. You can pay in more in gross terms and the amount of tax relief you receive is based on your age.

The available tax relief increases with age; 15% in your 20’s up to 40% in your 60’s. As you progress over your career and as your salary tends to increase it is a worthwhile exercise to ensure your contributions are linked to your updated salary.

2. Investment Returns
It is important to make sure that your asset allocation is correct. Far too many individuals have too little investment risk in their pension.

This is not surprising, with the memory of past recessions and market crises like last March due to Covid-19. People’s behaviours tend to not change. In simple terms, those of us who have decades left before we retire should have most, if not all, our pension money in equities so short-term and even medium-term volatility should be of none or little concern. Be in the right funds based on our age and attitude to risk.  

 

In general terms, those who are younger invest in funds designed for investment growth, while those who are closer to retirement will invest in more cautious funds to protect the funds they have built. I will argue the toss with you on this.

As everyone is different, and their circumstances are also different it’s worth taking advice. This is even more relevant for those 10/15 years from their retirement age as they have significant funds that need monitoring. 

 

Take control of your pension

Demystify all the noise that happens around pensions and bring it back to you, what is best for you. Book your free virtual appointment with us. What we leave you with is a high-level road map of how we could help you achieve your retirement goals.

Take care,

Kieran Ward, Managing Director, Pension AdvisorKieran Ward
Managing Director, Pension Advisor

[email protected]
01-5310566

Pension Benefits –  Don’t Leave Them Behind

Pension Benefits – Don’t Leave Them Behind

Pension Benefits 

The job for life is largely a thing of the past. Employees tend to change jobs and, in some cases, employees change career direction way more frequently. This does create financial planning opportunitiesFor those who neglect their pensions and don’t plan this creates a suboptimal outcome.

 

Multiple Pension Pots

As a result of transience, it is now the norm that an employee has multiple pension pots tied to old and present employers. Due to inertia, employees are left with a series of pension pots they know little about. They don’t know how much they have in it, they don’t know how it’s invested and they have no visibility on the associated charges. They don’t have control.

To varying degrees employees now have an opportunity to build real wealth via their pension funds. This opportunity can be wasted if these old/previous employer pensions are neglected and ignored. There is little consideration to the investment strategy and who owns the assets, very few are including these old pensions into their overall financial plan.

A review of these pensions is a prudent exercise.

 

Default Strategies

A lot of these pensions are in default strategies, this asset allocation may not suit your overall profile. Too many are not taking enough risk and with a long time horizon. We are seeing allocation to only one asset class and geography in a lot of these pensions. It is important to gain control and have regular reviews to make sure you are on target. You should include these old pensions in your overall planning.

The old rule of thumb was to leave all your pensions where they are, sure … won’t they be grand! It then became popular to consolidate pensions. It is important to highlight that this is not always a good idea! It simply doesn’t make sense all the time. Phasing your retirement is becoming more and more popular.

This is the concept that you can access a pension fund after you have left employment and you are age 50 or older. You can access the tax-free lump sum to pay off your mortgage, pay for your children’s education or go on a pre-retirement trip. 

Someone who has just moved to a new job sometimes feels it is prudent to transfer their old pension to the new employer scheme. A downside here is by taking the old scheme into the new scheme, the old pension funds are now subject to the new scheme rules.   

Take control of your pension

Demystify all the noise that happens around pensions and bring it back to you, what is best for you. Book your free virtual appointment with us. What we leave you with is a high-level road map of how we could help you achieve your retirement goals.

Take care,

Kieran Ward, Managing Director, Pension AdvisorKieran Ward
Managing Director, Pension Advisor

[email protected]
01-5310566

Have you heard of a QROP? Transferring Uk Pensions

Have you heard of a QROP? Transferring Uk Pensions

UK Employment

For many pension is a complicated thing, they find it a challenge, it causes them confusion and they find it boring. At Pension Planners, we know pensions are important. So let’s make a complicated thing simple!

So you have worked in the UK and you have built up a UK pension while you were living and working there. You are back home now and you may wish to bring your pension home too. Brexit caused uncertainty and then came Covid!

Transferring UK Pensions

By transferring your UK pension to Ireland your pension is now subject to Irish legislation and the Irish Tax System. The pension is now invested and administered in Ireland, the pension in most cases is now in Euro. No need to worry about the currency risk once it’s home.

QROP

The HMRC (Her Majesty’s revenue and customs) in 2006 allowed UK pensions to be transferred to the Republic of Ireland once the receiving pension was approved as a Qualifying Recognised Overseas Pension Scheme – a QROPS.

So when you access it there are certain conditions that need to be met, once you have transferred your pension home to Ireland and you have not been resident in the UK for 5 years there is no tax event.

There are several options to choose from – you can take a tax-free lump sum and transfer the balance to an Annuity or invest in AMRF/ARF.

Take control of your pension

Demystify all the noise that happens around pensions and bring it back to you, what is best for you. Book your free virtual appointment with us. What we leave you with is a high-level road map of how we could help you achieve your retirement goals.

Take care,

Kieran Ward, Managing Director, Pension AdvisorKieran Ward
Managing Director, Pension Advisor

[email protected]
01-5310566

Pension Auto Enrolment and its Impact

Pension Auto Enrolment and its Impact

Managing your Financial Retirement

For many, they see their pension as a complicated thing. People find it a challenge, it causes them confusion and they find it boring! At Pension Planners, we know pensions are important! So let’s make a complicated thing simple.

So, what we know right now is about 35% of private-sector employees do not have pensions. The coverage in the Public Sector is practically 100%. Our colleagues in Employee Financial Wellness, have found that 67% of respondents to a recent survey have expressed concern about managing their finances in retirement.

As a nation we are worried about pensions, a significant amount of people in Ireland will rely on what is now an unreliable thing- the State Pension.

The amount one will qualify for in the state pension (contributory OAP) depends on each individual’s contributions and credits built up. Credits are given when you are paid social welfare benefits, such as Job Seekers or illness benefits.  

The Impact of Pension Auto-Enrolment

Automatic Enrolment (if introduced) would see Employers introduce a workplace pension scheme. Employers then will automatically enrol their employees into the scheme. Employers would be obliged to contribute a percentage of an employee’s salary to help fund their retirement. This is a contentious issue as you can well imagine.

There is a pension gap or as the media call it – the pension time bomb! The Government are in support of Pension Auto Enrolment and to bridge this gap. There has been a delay due to Covid. But, this gap still exists and it will continue to grow. The Irish State pension system is not sustainable in the future due to greater life expectancy and we are getting older. We have an aging population.

 

Can I rely on the State Pension? 

According to the CSO, the number of workers who expect the State pension to be their main source of income has risen from 26% in 2009 to 36% in 2015*. A sharp fall in pension coverage is cause for concern for all of us because this increase in reliance on the State pension will place even more pressure on already strained resources.

Therefore, auto-enrolment is seen as a viable solution to the pension problem and could encourage people to be more financially aware of the importance of saving for their retirement. Time will tell! And we are running out of that!

Take control of your pension

Demystify all the noise that happens around pensions and bring it back to you, what is best for you. Book your free virtual appointment with us. What we leave you with is a high-level road map of how we could help you achieve your retirement goals.

Take care,

Kieran Ward, Managing Director, Pension AdvisorKieran Ward
Managing Director, Pension Advisor

[email protected]
01-5310566

Should You Pay Off Your Mortgage Early?

Should You Pay Off Your Mortgage Early?

Should you pay off your mortgage early or pay more into your pension?

This is a question we are asked quite a lot.

With mortgage interest rates at historic lows, many argue that there is little point in aggressively paying off your mortgage. Some argue that paying off debt is always a good idea during times of uncertainty in the markets. We weigh up the options for you here, so you can decide.

 

Early mortgage repayment – Questions to help you decide

So, what do you think you should do? Should you save or pay off your mortgage early?

1. What other debts do you have? 

Expensive debts are those which cost a lot to pay off over time. Your Credit cards, for example, charge a high rate of interest over the course of a year. Other examples include unsecured loans, where the interest rate is significantly higher than the cost of your mortgage borrowing.

Always pay off more expensive debts before thinking about reducing your mortgage – but don’t go down the road of building up this type of debt again.

2. Are you putting money into a pension scheme?

Your pensions are a tax-efficient way to save for your retirement because the taxman tops up your contributions with tax relief. It’s free money. And, if you have a company scheme your employer might pay into the scheme too. If you don’t have a pension and have disposable income, it would be prudent to start contributing to one. The earlier you start, the sooner your pension pot will start to grow. It is never too late but don’t leave yourself with too much work to do! Time is everything here.

It is important to think about funding your pension and your life in retirement before deciding to use your savings to pay down your mortgage early. It’s also worth taking stock of your previous employer pensions you have. It might be worth having these in a Personal Retirement Bond, and to see if it makes sense to access these to pay off your mortgage and free you from expensive debt.

Employer Pension Scheme

You should check the terms of your employer’s pension scheme as you may find that they will offer to match your own contributions to a certain amount, for example, they may say if you pay 5% they will pay 8%, so you get the benefit from your employer’s higher rate of contribution in addition to the tax relief benefit.

Also, ask your employer if you can make contributions to the pension arrangement via salary sacrifice, which is you sacrificing a certain amount of salary in return for a gross employer pension contribution. Both you and your employer save in PRSI as well as you paying less income tax. While it comes with some considerations and restrictions, salary sacrifice is a tax-efficient way to grow your pension pot.

3. Can you get a savings rate higher than your mortgage interest rate? Can you save in a place where there is an opportunity for growth? 

If you’re already contributing to a pension scheme, rather than pay off your mortgage, it might make more sense to put your money into a regular savings fund. This gives you the opportunity for growth, that is not available on deposit in the high street banks or credit unions.

Advice is key

If you can find a deposit rate that pays a higher rate of interest than the rate you’re being charged on your mortgage please get in touch and tell us about it! In the present climate, it’s important to weigh up a few factors to get an accurate comparison. Work out what the rate amounts to after you’ve paid tax on your savings.

Other things to consider if you want to pay off your mortgage early! Keep some money in reserve, ensure you have saved enough money to keep you going for at least 3 to 6 months before paying off your mortgage early.

4. Will you be penalised for overpaying your mortgage? 

Check your mortgage provider to get an accurate picture of how charges can cut into any savings, which result from overpaying your mortgage. You could be penalised for paying your mortgage off early or overpaying your mortgage, which goes over your agreed annual limit.

Many lenders will let you overpay up to 10% a year without penalties.

The benefits of overpaying your mortgage!

If you overpay your mortgage it doesn’t just mean you have less to pay in future years, it might mean that you can pay your mortgage off sooner – sometimes even years earlier.

Top tip

On a €150,000 mortgage at 5% with 25 years remaining, paying off a €5,000 lump sum will reduce the interest by €11,500 and the repayment by 18 months.

Overpaying when interest rates are low means you’ll have a smaller mortgage to be charged the higher interest on. If you decide to overpay your mortgage. If, after weighing up all the facts, you decide to overpay, then you may need to time it right.

The dual approach!

Contributing now to a pension, to benefit from longer-term growth, and taking advantage of mortgage interest rates while they are low should give you a good balance between the two. When you have pulled your figures, and reviewed your mortgage, you may find that you can use your increase in pay to benefit both your pension and your mortgage repayments. Remember, you can allocate less to your pension as you have the addition of tax relief and the employer contribution. Advice is key here.

Take control of your pension

Demystify all the noise that happens around pensions and bring it back to you, what is best for you. Book your free virtual appointment with us. What we leave you with is a high-level road map of how we could help you achieve your retirement goals.

Take care,

Kieran Ward, Managing Director, Pension AdvisorKieran Ward
Managing Director, Pension Advisor

[email protected]
01-5310566

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