Pensions – Keeping The Dark Clouds Away From Your Later Years

The economy is recovering, incomes are starting to creep up again and hopefully you have some spare money that you are considering how to make the most of. Maybe your pension planning took a bit of a back seat during the last few years and it’s time to start thinking of planning for your later years again.

The tax benefits of pensions are well heralded. Tax relief at your marginal income tax rate (either 20% or 40%) continues to apply to your pension contributions, one of very few areas that continue to qualify for such attractive reliefs. Also the dreaded pensions levy which was effectively a tax on all our savings for the last few years finishes at the end of 2015. So from a value point of view, it’s hard to argue against pension plans.

But still when it comes to the subject of pensions, the questions we’re asked most regularly are;

  • Do I really need a pension?      and
  • Are pension plans the best way to plan for my old age?

We firmly believe the answers are YES and YES! Structured pension planning is far and away the most effective way to keep the storm clouds away from your later years.

Do you need a pension?

Well unfortunately none of us are getting any younger and even though retirement may seem like a distant event, steps that you take now will determine your lifestyle in your later years. At the end of the day, it’s really all about building up a war chest for when you stop working. The bigger this pot is, the better your lifestyle will be when your income stops.

Some good (and bad!) news is that we’re all now living longer than before.  Men are now living on average to age 78 and women to age 82. We can thank our healthier lifestyles, better diets and medical science for this! While this is certainly good news, it also comes with a price. If you live longer, you need a bigger nest egg to see you through these years.

Will the government look after you?

Unfortunately you can’t rely on the state if you want any more than a subsistence lifestyle.  The state (contributory) pension is currently €230.80 per week for a single person and €436.60 per week for a couple and these amounts haven’t changed in years. Not a lot of money if you fancy going on the odd holiday! Also the state has already started pushing out retirement dates – for anyone born in 1961 or later, they won’t get their state pension until age 68.

On top of this, the government actually hasn’t saved any money for future pensions. So as the numbers of those working reduces in relation to the numbers of pensioners receiving benefits (as our demographics show they will), there will be less money for the government to pay out. So what can they do? Well first of all, they can increase PRSI to bring more money in to pay out in benefits. Or else they can reduce the benefits or indeed introduce means testing of state pensions. The likelihood is, it will be a combination of these sort of remedies.

The reality is that it’s up to us to look after our own retirement needs if we want a nice lifestyle to enjoy.

Are Pensions the right way?

We know that pensions are a complex area and this puts a lot of people off. However working with a good independent financial adviser will help you cut through this complexity. We can help you identify the right pension structure for you to ensure that a pension plan meets your needs in later life. Pension plans today can be extremely versatile and tailored to you to ensure you maximise the benefits by;

  • Investing in assets that meet your risk appetite.
  • Investing in a wide diversity of assets to minimise any investment “shocks”.
  • Gaining tax relief (still at the marginal rate!) on your contributions.
  • Seeing your pension fund grow, free of any taxes.
  • Availing of a tax-free lump sum of part of your fund at retirement.

What do you do next?

Well it’s probably quite obvious but the longer that you pay into a pension fund, the more you can expect to receive when you retire and the more likely you are to achieve your financial goals. So don’t delay.

Also, be realistic about how much it will take to achieve your goals. As a rough rule of thumb, you should aim to save “half your age”. So if you’re 38 like me 😉 you should aim to save 19% of your income to build up a decent fund. Of course, this is only a rough calculation. We will help you develop a far more tailored picture for you, taking account of any existing benefits that you’ve already built up and will help you to implement a plan that is right for your particular circumstances.

And really this last point is the key to it all. Helping people to develop tailored solutions to address your retirement needs is meat and drink to independent financial advisers such as us. Talking to someone who is independent is crucial. Independent financial advisers devise solutions and recommend products that best meet your needs, as we have access to all the products in the market. Unlike a bank or a direct seller, we are not forced down the route of recommending a particular product of one institution.

So in summary, you’re hopefully going to be retired for a very long time. How well you can enjoy this is up to you, as you can’t rely on the state. Remember all the benefits of pension plans. Oh, and make sure you get independent advice.
(Photo courtesy of Flickr user brainware3000)

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