Pensions

Most people work to generate income to support themselves and their families. Some people take early retirement in their 50’s but most people retire in their 60’s. The qualifying age for the state contributory pension for persons born after 1961 is 68 or 66 if born in 1954 or earlier, the pension age is from time to time adjusted by the state depending on what is deemed appropriate in the circumstances. For example, the qualifying age was increased in the economic downturn. People are also living longer with medical advances and better lifestyles. At the moment, Ireland is said have an aging population which will place more pressure on the state system overtime, this is not unusual and can happen in different countries at different periods in time. For single person the current state pension is €230.30 per week, if you have 1 adult dependant it is €436.60 (information as at November 2015, this information could change and is for illustrative purposes only).

When you reach retirement age your earned income often stops and your monthly salary is no longer there, people are not often concerned about this as they see retirement as a remote concept in the distant future. However; if you thought about retiring tomorrow, how much would you have to live on after the state pension?

If you have no pension and you are relying entirely on the state contributory pension, life could be very restricted. The cost of living in Ireland is relatively high when compared with the state pension. Pensions are something most governments encourage throughout the world, for example, in the UK the government have a Pensions Minister. In Ireland, we have the Pensions Board and over the years many changes and reforms have been contemplated. In the main, Ireland supports pensions through tax relief on a person’s earned income (income through employment).

Retirement years should be an enjoyable time in your life, you have worked hard and you should be able to enjoy life and do the things you want to do. With this in mind, you are going to need a pension to allow for rainy days, continuing to pay health insurance premiums, travel, perhaps your grandchild’s wedding and other financial needs you may have. You can do this on your own but calculating this and quantifying your needs can be daunting. There are many rules around pensions, tax free lump sums on portions of your pension fund, this calculation can be affected by previous redundancy payments. It is important to point out your pension forms part of your income in retirement, savings, other investments and perhaps earned income through some other form of employment like a small business or part-time job are also factors for consideration.

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How do pensions work?

There are different types of pension structures but generally speaking pensions are defined benefit or defined contribution and more recently you can have a combination of both. Defined benefit pensions generally provide for a portion of your final salary on leaving, this can be higher or lower depending on your years of service. If you had the maximum years’ service when leaving the scheme, you might expect to receive 2/3 of your final salary. Defined contribution is where monthly salary contributions from you and perhaps your employer are invested through a scheme into funds or investments to deliver a return subject to fund management and other charges with the anticipation the fund will increase over time. This is basically using savings to invest with the hope a return will be delivered over time. These calculations are specific to a person’s own personal circumstances and that is why advice is important.

What are the risks of investing in pensions?

Different pension funds have different levels of risk, often people invest in funds with a higher risk and return profile in the earlier years of their pension and move to lesser risk funds or investments as they get closer to retirement. For example, people often invest heavily in equities (stock market shares) when retirement is more than 5 years away. When people get closer to retirement they often invest in lower risk investments such as cash deposits. Your own attitude to risk is very important to match the correct type of fund or investment for you. We can help you navigate through this and identify funds that suit you based on your attitude to risk and return. We do this by asking you questions as a part of an overall risk assessment to establish the appropriate risk level for you.

If you want to discuss your retirement options further, call us on 01 480 4414 or email us at info@brindlefinancial.ie alternatively you can request a call back.

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