Retirement and pension planning might seem complex to most of us, but the basic idea is straightforward. It is important to understand their benefits to you and your family, because the State Pension – whilst providing a reasonable foundation for you in retirement – will more than likely not be enough for you to live on.
More than half of people in Ireland are not saving at all for their retirement, and those that are saving are not putting away enough to give them the standard of living they hope for when they retire.
If you fall into the latter category, you have a few choices to make. You could:
- adjust downwards what you will be able to spend in retirement
- start saving more now
- retire later than you really want.
My advice to clients is not to rely on the State Pension to keep you going in retirement. The current maximum basic State Pension is €233.30 (2016 rates) per week, and this is far below what most people say they hope to retire on.
What are the advantages of saving into your pension?
Once you have decided to start saving for your retirement, you need to choose how to do so. Pensions have a number of important advantages that will make your savings grow more rapidly than might otherwise be the case.
A pension is basically a long-term savings plan with tax relief – your regular contributions are invested so that they grow throughout your career and then provide you with an income in retirement. Generally, you can access the money in your pension pot from the age of 60.
Does tax relief top-up your pension pot?
As we all know from many years of tax increases since 2008, once your income is over a certain level, the government takes higher rates of tax from your gross earnings. You probably do not need me to tell you this, you can see it on your payslip.
However, if you decide to place some of your earnings into your personal pension plan, it qualifies for tax relief. This means that as well as the money you are putting into your own pension pot, some of your earnings that would have otherwise gone to the government in the form of income tax, now goes into your own pension pot instead. This is one of the major attractions for people to take out a pension – tax relief on your contributions.
Can my employer pay something into my pension too?
In general, large employers in Ireland have occupational pension schemes, but many smaller employers throughout the country do not., There is no legal obligation on employers to provide occupational pension schemes for employees. However, to help people save more for their retirement, more and more employers are putting schemes in place and there is positive government encouragement to do so.
If your employer gives you access to a pension that they will pay into, then unless you really can’t afford to contribute or paying down debt is a priority, not paying into your pension with your employer is similar to turning down the offer of a pay rise! If your employer will contribute to your pension regardless of whether you pay into it or not, then you should join the scheme.
How much should I save?
To make sure that you are on track to meet your retirement goals and income target, it is vitally important to review your pension savings and estimate the income they are likely to generate in your retirement. If there’s a shortfall in your savings, the earlier you spot it the easier it will be to fix. You also need to consider the type of investment strategy for your pension fund and make sure that this meets your attitude to risk throughout the savings period and post retirement.
I meet with our clients on a quarterly basis to review their pension planning, discuss any changes they wish to make to their pension target age and income in retirement.
A good adviser can save you money and a lot of worry.
Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth, a Financial Planning practice based in Main Street, Midleton, Cork. For more information, contact Gerard at email@example.com www.heritagewealth.ie
Disclaimer: All data and information provided within this article is for informational purposes only. Heritage Wealth Management Limited makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries, or damages arising from its use.