Many clients react negatively when the topic of pension planning is mentioned.
Customers have told me that they have years before they need to think about the income they can expect to have after their employment ends, that they do not believe in pensions or pensions are simply not worth it.
Although Ireland arguably provides a generous pension income compared to many other countries, do you think you could survive on €238 per week?
Remember, for most of us the State Pension will not be available until age 68 and there is every chance that it could be extended past this age in the future. There are also growing concerns over the sustainability of State Pension payments. The last Census shows that people are living longer and the number of over 65s in Ireland grew by nearly 20% from 2011 to 2016, making this the fastest growing sector. (Source: CSO - Census 2016)
At the end of the day, it really is our own responsibility to ensure we can afford to enjoy our retirement years. There are incentives for doing this but very few people realise that you are effectively paid by the Government to invest for your future financial security.
The biggest success in the Irish savings industry in recent history was the Special Savings Incentive Accounts (SSIAs). Over 1 million people invested in SSIAs which accumulated over €14 billion of savings. These simple accounts were hugely successful because for every €4 you saved the Government added €1 so you were given a 25% free top up. I can only assume that we would all be extremely keen to invest if SSIAs were on offer again today so why do so few of us take up the offer where you can receive an extra €2 into your pension for every €3 you invest?
For instance, if you are earning an income and paying Income Tax you can claim tax relief at your marginal rate against your pension contributions. The level of relief is dictated by certain criteria including your Income Tax rate. For 40% tax payers investing €1,000 into a pension today it will cost you only €600. The Government effectively pays you €400 to make up the balance by granting you tax relief on your contributions.
Pensions are a long term method of saving in a tax efficient manner and all growth is tax free. When you access the pension you will be allowed to draw down a tax free lump sum and the remaining balance will be used to provide you with an ongoing regular income. You can potentially access personal pension provisions prior to receiving the State Pension; therefore, this can essentially be used to bridge any gap if you choose to stop working before you qualify for the State Pension.
I would strongly urge anyone without a pension to arrange a meeting with an Independent Financial Advisor and discuss your options now.
Rob Downes, QFA is a Qualified Financial Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on firstname.lastname@example.org