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Take control to secure a decent retirement

19/04/2024 Posted by IAPF | Comments(0)

Our ageing population has highlighted the need for people to think carefully about their financial provisions for later life. It is estimated that 68 per cent of workers have some form of private pension cover, while the rest of the population will depend solely on the state pension as it stands now. This figure drops dramatically to 33 per cent for workers aged between 20 to 24.

Furthermore, it is projected that the number of people aged over 65 is set to double within the next 30 years. With this changing demographic, it is more vital than ever for younger workers and those working with no private pensions to start a pension scheme immediately.

“More and more people are living longer, with many people often spending 20 to 25 years in retirement,” says Adrian Godwin, senior financial consultant and managing director, OakTree Financial Services. “If you think about the drop in income from your current salary to the state pension of just over €14,000, it’s true that many will have to make serious adjustments to their spending attitudes. By preparing well in advance you can fund your retirement income and avail of tax relief at the same time, meaning that more is going into your pension than is coming out of your wallet.

“There are a huge number of options with regard to pensions and advice should be sought as to which is more suitable for your personal needs. However, ultimately all of these options are simply a pension and that is what is key to remember. Don’t be overcome with jargon.”

The pensions world is rapidly evolving, and it’s essential to keep on top of these regulatory changes and how they might affect you. One of the most significant changes is the prospect of auto-enrolment, which is slated to begin in January 2025 – just months away. The start date was set after many postponements – but experts still question if this date is realistic, given the amount of work still to do.

“The timeline is definitely ambitious,” commented Jerry Moriarty, chief executive of the Irish Association of Pension Funds (IAPF). “In order to be up and running on January 1, 2025, the administrator of the system needs to be appointed and they then have to build the system to cater for 400,000 members. The tender for the investment managers hasn’t been issued yet and there is a lot of work to be done to ensure employers and employees are aware of auto-enrolment. Auto-enrolment has dragged on for so long it might appear that further delays don’t really matter but it is important that employers can budget for the contributions they will need to make and employees are aware of the impact on their take home pay.

While there is still debate over the commencement date and the details of the scheme, the general consensus is that auto-enrolment is a positive move for our country, especially for lower earners.

“Auto-enrolment a very important element in ensuring people are prepared for retirement,” said Moriarty. “At present, over half of the workforce have no additional retirement savings and would only rely on the state pension in retirement. The state pension is designed to keep people out of poverty, and people will need additional savings to have a retirement they can enjoy. This is even more important as people live longer and many are also facing the prospect of having to rent in retirement.

“It is difficult to prioritise a need in the future over the very real needs people have today. That is why auto-enrolment has been so successful in other countries. Effectively it makes a decision for people that they were unlikely to make for themselves but know to be good for them.”

Auto-enrolment may also help bridge the gender gap in pensions. Statistics show that while 50 per cent of women are now active in the workplace, women are still less likely to have a pension and their pensions are likely to be of lower value.

“A lot of the disadvantages women face in the workforce feed into pension provision, particularly that they tend to earn less and have shortened working careers,” said Moriarty. “While those issues can’t be directly addressed by the scheme, some employers are good at raising awareness of the need for pension provision for women, particularly at crucial times such as returning from maternity leave.”

While auto-enrolment is a positive move, it’s still essential that people inform themselves of the changes currently happening in the pensions world – especially as there are still so many details about Ireland’s auto-enrolment scheme still to be decided.

“My advice to people is to take control now of their pensions and start looking at what’s available and what is most suitable for them,” commented Emma Farrelly, senior financial planning Partner, Irish Life Financial Services. “For instance, if you are a higher earner, then getting the 40 per cent tax break from a PRSA would be a lot more beneficial than the standard rate.

“With auto-enrolment, there is an option to opt out after six months, but the logistics of this is still unknown. Even understanding what’s available elsewhere and what are the main features of auto-enrolment gives you the power to decide what’s best for you before you are automatically enrolled in the state scheme.”

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