Getting Comfortable with Your Pension
We’re all familiar with various statistics around the challenges facing Ireland when it comes to pensions - Irish people are living longer in retirement, we’re an ageing population, there will be two workers for every one retiree by 2050, the cost of healthcare in retirement is increasing and so on. While steps have been taken to partially reduce the cost of the State Pension by gradually increasing the age from which you can get it, it is still difficult to see how the level of the State Pension can be maintained without significant burden on the Exchequer.
Even if the State Pension is maintained or perhaps very slightly increased if latest reports are to be believed, is a little over €12,000 per annum enough to live on? Is it enough to provide you with the type of lifestyle you hope to have in retirement - going on the odd holiday, having a nice meal out, treating the grandchildren? Probably not.
So, if the State Pension won’t provide you with the lifestyle you hope to have after 40 years of hard work, you need to consider taking out a private pension to supplement the pension you’ll get from the State.
Yes, pensions can be made complicated but there is no more tax efficient way to provide for your retirement than a pension. Pensions at their core are a tax-free savings plan - you pay money into a fund which grows over time and you can then use that fund when you retire. You could save money in the bank or buy some rental properties but none of the alternatives will offer the same benefits as a pension:
- The tax relief on contributions
- The tax-free growth on the fund
- The opportunity to take an amount tax-free at retirement
One way to look at a pension is like SSIA’s where the government gave us €25 for every €100 we saved. With a pension, if you are a top-rate taxpayer the government effectively gives you €40 for every €100 you save. There is nothing too complicated about that!
Complications might start when you are trying to decide what pension provider or fund to choose. This is where seeking advice from an experienced financial adviser is crucial. Ultimately, your lifestyle in retirement depends on decisions such as what pension, how much to contribute and where to invest. These are very important decisions and should not be taken lightly, so unless you are highly experienced when it comes to financial matters, you should get some form of financial advice.
A good place to start might be Irish Life’s pensions calculator, see www.irishlife.ie, which is an easy tool to help you work out how much you should set aside now and to understand what tax relief you can get. You can also find out what kind of investor you are with our simple three step investor profile and see what funds might suit you depending on whether you are the conservative or more adventurous type.
You’ll find out which Irish Life MAPS fund - Multi Asset Portfolio funds available on our pensions and investment plans, might suit your needs. These funds, as the name suggests, invest in a wide range of assets - shares, bonds, property, cash, alternatives and more. You’ll also be provided with information on the range of returns you could expect so you can get comfortable investing. To date over 35,000 Irish customers have chosen to invest with Irish Life MAPS for their pension and investment plans.
Before making your decision, you should speak with a financial adviser who will go through the details, give you the expert advice you need and outline exactly what Irish Life MAPS can do for your pension.
It’s up to you
While we would all prefer not to have to think about these things, the responsibility is really on you to ensure that you are providing for your own retirement. The steps aren’t difficult and even a quick look around the Irish Life website will set you on the right path.
If you haven’t started a pension, don’t put it off for another year. The earlier you start, the easier it is. Even if you are already paying into a pension or have a pension through work, make sure you are talking to an adviser at least annually. They can help you to make sure you are maximising the tax benefits, to ensure that your current pension is invested appropriately and that you are on track for the type of retirement you want.
To take the next step in ensuring that you have the pension to provide for the retirement you want, visit www.irishlife.ie then talk to your financial broker or adviser.