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Stop pension hitches and delays running your retirement

02/02/2020 Posted by IAPF | Comments(0)

The state pension age has become a major issue for this Saturday's general election. The prospect of a two-year wait for the state pension - which is what anyone turning 65 this year and in the next few years is currently facing - has angered many. Furthermore, most of those in their 50s today are facing a three-year wait for the state pension - unless the Government rows back on its plans to increase the state pension age to 68 from 2028.

The age, which is currently 66, is due to increase to 67 next year. This could force tens of thousands of retired people to join the dole queue for two years - and leave them €2,340 a year worse off for that period because of the difference between the state pension and the dole.

(Those aged 65 or older can currently claim the dole until they reach state pension age, but the dole payment is €45 a week less than the full state pension.)

This could all change when the new government is elected. Most of the political parties have made election promises around the state pension. Fine Gael (FG) and Fianna Fáil (FF) have pledged to introduce a transition pension equal to the value of the state pension, although FF's would kick in at the age of 65 while FG's would do so at 66.

FF is also promising to defer the increase in the state pension age to 67 next year.

Time will tell if the parties live up to their election promises. However, the ongoing saga around the state pension age shows how important it is to be aware of, and prepare for, anything which could delay or eat into your pension. Here are some steps you can take to do that.

Get your pension paperwork early

Getting by on the state pension alone will be a huge financial challenge for many people -whether you are facing a one or two-year wait for it or not. Having a reasonable private pension in conjunction with the state pension can be a big help in retirement - but make sure this pension kicks in on time.

"It's important to get all of the information on your private pension or pensions together early - as leaving this until the last minute could delay things," said Jerry Moriarty, chief executive of the Irish Association of Pension Funds.

So, for each private pension that you have, find out who the administrators of that scheme are, get their contact details, make sure the administrators have your up-to-date contact details, and check where the pension scheme is. Do this at least a year before you expect to retire.

Bear in mind that it can sometimes be difficult to trace old pensions, particularly if you are no longer working with the company that offered that pension.

Contact the Pensions Authority if you have difficulty tracing your pension, as it keeps a register of company schemes. Another useful way to track a pension is to ask previous colleagues who also worked with the employer.

Make decisions on your pension early

Find out how you can draw down your private pension - and decide what is the best way for you to do so, bearing your personal circumstances in mind. It may be worth getting independent financial advice on this to ensure you make the best decision. Should you have a number of private pensions, it may make financial sense to bring all of these together, though be sure to check what charges you will incur when doing so, and if there are any features of a pension which cannot be transferred to another one.

Check what State pension you'll get

The maximum state pension is €248.30 a week - but you might qualify for a much smaller pension than that. So find out if you will qualify for the full state pension. If you will be entitled to a much smaller state pension than you had expected, take any steps you can which could help to boost that pension. The earlier you do this ahead of your retirement, the better.

Your social insurance record will largely determine if you qualify for the full contributory state pension (the pension which is not means-tested). So, several months before you retire (or earlier), check your social insurance record and make sure the Government has correctly recorded all of your time in the workforce. Should you find that there is no record of social insurance contributions for a period of time when you were in the workforce, point this out to the Department of Social Protection and get evidence together to prove that you did in fact work at that point.

"You have a chance to correct your record on time - if you check it before retirement," said Derek Bell, chief operations officer with the Retirement Planning Council.

"If you leave it until more than six months after your retirement to check your social insurance record - and you find out at that stage that the record is wrong and that you're entitled to a higher state pension than you're getting paid - the department may correct the payment, but you may not get that payment backdated."

Be sure, too, to check that you have been correctly credited for time spent outside of the workforce to rear children. You usually qualify for credited contributions - which are similar to the social insurance contributions paid while working - if you are looking after young children in the home. These credits count toward, and therefore usually protect your entitlement to, a state pension in the future. Bear in mind that you may also be entitled to credited contributions if you received certain social welfare payments, such as jobseeker's benefit or illness benefit.

Should you be planning to leave work before the normal retirement age, you may be able to make voluntary social insurance contributions to prevent you building up a gap in your record - thereby protecting your state pension.

However, you must start to make your voluntary contributions within a certain time of leaving work. Bear in mind that you may not have to make voluntary contributions to protect your social insurance record if you are leaving work due to illness, disability or unemployment, as you may automatically get credited contributions.

Work into retirement

The usual retirement age in employment contracts is 65 but you may be able to continue in your job for longer. Indeed, to make ends meet, you may have to do so - particularly if you do not have a private pension or if you do not qualify for the full state pension. Talk to your employer about the possibility of working beyond the normal retirement age. Have this conversation a year or two before you are due to retire. You will usually be offered a fixed-term contract if your employer agrees to this, according to Bell. "This contract could be for a few months or a few years - depending on what's appropriate," said Bell.

Employers can set a compulsory retirement age for employees but only if they can show that they are objectively and legitimately justified in doing so.

Save more into your pension

Most of us are not saving enough into our private pensions. So, come retirement, many of us will not be able to afford to maintain the standard of living we became accustomed to over our working lives. Find out exactly what kind of pension you can expect from the amount you are currently saving into your scheme. Chances are, it will fall way short of what you had been expecting. Should this be the case, start saving a lot more into your pension now.

Start a pension late if you have to

Even if you are in your 50s or early 60s and have not started saving into a private pension, it would still be worth doing so at that late stage, advised Moriarty. Pensions are a very tax-efficient way to save, and the older you are, the better the tax relief on your contributions. It is better to have a small nest egg by the time you retire than none at all.

Get ready to budget

"Make sure you budget during your retirement - particularly for miscellaneous expenses each month," said Bell. "It's very easy for people to spend money when they stop working."

People with private pensions often take the maximum tax-free lump sum that they are entitled to from those pensions when they retire.

"People need to think long-term when taking money out of their lump sum," said Moriarty. "A lot of people underestimate how long they will live for in retirement."

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