Pensions, are they still worthwhile?

I am working in my office right now and was trying to come up with this month’s segment. My father in law came out to ask how business was and we got talking about Pensions. I was stressing how some people do not really value the concept of saving for retirement. He said, “Thank god I have my Pension secured, I know a lot of people who used to have a good standard of living who are struggling now in retirement”. His words, not mine.

As such I thought I would write about a question that has come up quite regularly from people who have arranged to meet with me to discuss non Pension products. That question is an inquisitive “Are Pensions actually worth paying into?” It is too broad a question to completely explore in this segment, but I will try to at least give people something to think about.

The biggest immediate benefit of saving in a pension is the tax relief you get at your standard rate. To save €100 into a savings plan, you have to invest €100. To save €100 into a Pension would cost up to 40% less after tax relief. You also get tax free growth on an investment in a Pension; you pay regular tax on any growth on normal savings/deposit accounts.

I am finding that some people actually like the fact that they cannot get their hands on their Pension until retirement. That is to say, they know that they can’t spend it impulsively like they would if it was available to them.

One of the things that many people find understandably difficult is putting themselves in their own shoes in the future. Imagine you are retiring next month and you have nothing but the state Pension, how would you manage? Some people have chosen to rely only on rental properties for their Pension and I would suggest that between 2007 and 2012 some of them have had a very stressful retirement.

Saving into a Pension doesn’t have to be your only source of retirement income (you can purchase rental property aswell). I find that once people start a Pension they don’t actually miss the money that they are putting aside. They also don’t think of it as something they can spend now and as such they have started the good habit of saving now for their eventual retirement.

People can argue the merits of saving into a Pension, but I would ask people to really think about how they intend on subsidising a drop in income at retirement. Whether you are an individual or a couple, the same conditions may apply once you cease working. The big question is will you have saved provisions to subsidise it.

Pensions: Exercise for your long-term financial wellbeing!

I have a wife, three young children and I work for myself. It can be tough to find time to get the exercise that I would like. I know exercise will help me feel better and will more than likely be extremely beneficial to me in the long-term if I keep it up. As such I have started to do a boxcercise class.

For me, exercise is not just about feeling good now; it’s about trying to feel good in the future. It’s about trying to condition my body to be healthy and strong and in the long term I hope it might extend my life. I know that exercise can improve my immune system which in turn may allow me to be more active in my later years.

A Pension is a personal retirement savings account (PRSA). You could say its exercise for your financial wellbeing. It’s about putting the work in now, so that you may benefit in the long term, particularly in your later years when you may not have the same opportunities to enhance your financial health.

There are days when for numerous reasons I really don’t want to get out to do the boxcercise. The days I push myself to get up and do it, I feel better and the days I give in and rest, I feel a little guilty. I can honestly say that any client that comes to me at retirement is happy when they have a Pension of their own to drawdown. In many cases they express remorse that they didn’t save more when they had the opportunity to do so.

Like exercise, the sooner you start contributing to a Pension the better the potential long term benefits. I know that I would prefer to retire as young as I can, but I also know that will be very much dependant on my physical health and my financial health. In both cases, I can only commit so much time/money now, but a little bit of both is better than nothing of either.

Questions on old Pensions left behind...perhaps even ones forgotten!

In this article I will run through some of the most frequently asked questions in relation to old paid up pensions. These are pensions that you may have had with a previous employer that you never moved or enquired about at the time you left employment.

How do I get information about my old Pension?

In most cases you should be receiving annual benefit statements with general details (including the value) of your Pension. If you are unsure where to look, the company’s human resource department (or Employee Pension department if there is one) is a good start.

Can I bring my pension with me when I move employment?

In most cases, when you leave employment, you have several options. Indeed you are entitled to request “leaving service options” which sets out exactly what you can do with your Pension. This can intimidate and confuse people but if it’s explained correctly I find people are more confident moving their Pension into their own name.

Will I lose out if I move out of the old Pension arrangement?

The only way of knowing is by enquiring about the benefits currently on the Pension plan, but in many cases you can actually benefit from moving your Pension funds into your own name.

If you do move a pension to your own name one of the biggest benefits is that you get direct access/information sent to you personally about you Pension. Some people like having complete control over their Pension and like not having to contact a Trustee (or old employer) anytime they want information regarding their Pension.

What can Drumgoole Financial Services Limited do for you?

Part of my job is to help people arrange their pensions together into an efficient/transparent portfolio. In simple terms this means you know exactly what you have and where you have it.

When many people move on from a job, they leave their Pension paid up (sitting idle) in their old Pension arrangement. I have had clients contact me who have had no correspondence in relation to their Pension for one reason or another.

Do you intend on relying on the government for assistance?

If you are currently employed and not saving into a Pension arrangement, have you ever thought about what retirement will be like? Have you dreamt of spending time with the grandchildren or going on nice breaks away every few months in your twilight years?

If retirement is not something you “dream” about, it is certainly something you should have in the back of your mind. A pension is a savings policy designed to subsidise the drop in income when we retire. The current state Pension is €230.30 per week (€11,975 per year).

Recently the age at which a person is entitled to receive the state Pension has increased. Some economical commentators think that the government may phase out the benefits of the state Pension over time. They could do this by raising the retirement age further or even by simply not increasing the current Pension entitlements (which will reduce the spending power over time).

A big question that people should consider now is that if they are comfortable with the thought of leaving the fate of their retirement in the hands of future governments? One of the biggest advantages of a Pension is that the more you have at your retirement age, the more financial control and flexibility you will have over how you spend your retirement.

A Story for the New Year

I met with a client (Oliver) recently who received their Pension retirement options from a major Financial Institution. They were given two options and weren’t particularly happy with either of these options. Luckily they contacted me to see if there was anything else they could do and indeed I was able to discuss a third option.

Oliver:

“When I went into the bank to discuss my Pension retirement options, the direct sales staff member was very friendly but I didn’t fully understand the Pension options they had discussed with me. After the meeting, I spoke with my brother in law about my disappointment at the options I had been given and he passed me on Oran’s number who he said was very thorough in his business dealings.

When I sat down with Oran, I showed him what I had received from the bank. During our meeting I discussed my concerns and we discussed my options in depth. Afterwards, I felt much more confident in my understanding of the options available to me. Better still, I was surprised to learn that there was another option that I could explore that had not been discussed with me when I was in with the bank adviser.

I am extremely happy that I was able to discuss my concerns with Oran. I really feel like I have a professional adviser I trust and whom I feel is looking after my best interests.”

It is important to remember that Direct Agents of large banks and Life & Pension Companies are only able to advise you on the products and services they can sell. These agents are not obliged to discuss alternative or potentially cheaper/better options. As a result, in some cases, I have spoken with people who have not received the advice or policy they really wanted.

This story is relevant for Life Assurance, Investment and Pension products that can differ from company to company. As we enter a New Year, with all our New Year promises still (hopefully) intact, maybe it’s a good time to consider if you are getting good value on your policy or receiving the best advice for your financial situation.

Clarity of Pension advice. . . . . . .

I have had numerous meetings with people locally who have contacted me because they had an experience with a door to door Pension salesman from a specified Pension provider. Some of the following are quotes used by people I have met:

• “This salesperson does not listen to what we were saying and only wanted to discuss specific things that were encouraging us to take out a policy”

• “I found this salesperson very pushy. They stated that their Pension company had the best investment funds and the cheapest charges in the industry”

Charges

A Pension policy where there are significantly high up front charges in the first few years are not always the cheapest or cost effective in the long run. In many cases there are certain bonus’s linked to these plans, but many people might not meet the criteria to benefit from these bonus’s that can distort the quote you receive.

I have sat down with several people who had been contributing to this Pension plan and after a couple of years are shocked with the value. There was one client who was shocked to learn that it stated on his Pension statement that these savage early charges would also apply to any potential increase he makes to his pension in the future.

Fund Performance

On any given month, many of the top Pension providers can say that they have one/some of the best funds in a specified field. This does not make them the best Fund manager in the market. For example a company may have a fund that did well from a specified timeframe (exactly 5 years) right now, but another company may have better fund performance figures over a 10/15/20 year period.

Confidence in saving for your Pension

If you are not fully confident or convinced by what a salesperson is saying then you should always consider getting a second opinion. A person who can only sell a pension , investment or Life assurance plan from the one company is only able to discuss these products in how their company has instructed. Different Pension providers have different charges and most of them nowadays do not do up front charges because many people might have to stop and start Pension payments as their situation changes.

Not sure? Give me a call . . . .

If you are not sure of what you are being sold or told, please do not hesitate to contact me.

What happened to my Pension savings when I moved Jobs?

If you or your partner were contributing to a Pension arrangement in a job that you have since left, then you may have Pension savings sitting paid up in your former Employer’s Pension scheme. Indeed the same may be the case if your employer was contributing to a Pension Plan on your behalf while you were working in that company.

When people change employment, many people do not think about personally taking control or moving the Pension fund that they had built up during the years working in this company. You are entitled to what is called “leaving service options” when you leave employment. These are a list of options of what you can do with your Pension Fund now that you are leaving.

In many cases one of the options is that you do not have to move the Pension savings and they can remain in this company Pension plan until you are at retirement age, at which stage you can drawdown your entitlements. But it is worth considering another option that you may be entitled to take. This option allows you to move your Pension savings from the company Pension plan to a Pension arrangement in your own name.

The main benefit to moving from a Company Pension arrangement into a Pension arrangement in your own name would be:

• All Correspondence is sent directly to you as opposed to the trustee whom in many cases is your previous employer

• You are in complete control over your Pension and do not require signoff from a third party (trustee) when you wish to move it or draw down your entitlements

• It can be easier and quicker to get information on your Pension(s) which also makes it easier to keep tabs on exactly how many Pensions you have and where they are.

Some people like to put all their Pensions into one Pension plan. While it has its advantages, it is worth noting that in some cases it can be beneficial to keep some Pension plans separate. A big reason would be if at retirement, you have only one big Pension plan, you must take your full retirement options. If you have several Pension arrangements you can draw your retirement options down at different times if it is more convenient.