It’s that time of year again. A lot of people are thinking about pensions to gain the benefit from the upcoming tax deadlines. But there’s been a lot of questions about pensions this year. From market volatility to auto-enrolment, it can seem like a bit of a minefield. Here, Anne O’Doherty, our Head of Life & Pensions answers the most commonly asked questions we have received and shares our view on how best to manage your pension.
I haven’t started a pension yet, when is the right time to do this?
Saving for retirement is extremely important. People are living longer and leading more active lives in retirement. As a result, it is more important than ever for you to think about where your income will come from when you retire. Starting a pension is one of the smartest decisions you can make. The earlier you start the better. But it is also never too late to start planning for the financial future you want. Have a look at this Pension and Retirement Calculator on our website. It can give you help with your retirement planning and to see you how much you need to put away for later in life.
I’ve read a lot of headlines about auto-enrolment recently – what is it?
Quite simply auto-enrolment is a new scheme announced by Government earlier this year. The aim of it is to try to encourage people to make adequate provision for their income at retirement. It will work by having employers automatically enrol their employees into a workplace pension scheme. It is aimed at those people who currently are not in a company pension scheme. The Government has estimated this number to be around 750k between the ages of 23 and 60 (earning more than €20,000). Our recent blog covered all aspects of auto-enrolment, and you can read it here.
Is my pension safe given the current market volatility?
We are being asked this a lot by our clients given the rocky year markets have endured. The first and most important thing to remember is that a pension is a long-term investment. By their nature markets have ups and downs but over the course of an investment these tend to level out. There are many factors that can affect the markets. Volatility is usually caused by political and economic factors, industry or sector changes or even individual company news. While it can be difficult to witness any declines in your portfolio, it is important to apply logic and not act out of emotion. The most important thing for an investor to do is hold their course. History has shown that those who have stayed invested during previous periods of market volatility have achieved their original investment objectives.
I’m getting nearer retirement, should I make any changes to my pension arrangements?
As a general rule you need to be between 60 and 75 years of age to take your pension benefits. If you are are about 10 years from your retirement age, then there are a few things you need to start considering. There are lots of things that you have had to think about to date – building your career, paying the mortgage, educating your children and maybe even saving for a rainy day. These are important. But as you start approaching retirement it’s now important to take advantage of the last 10 years of your working life to make sure you maximise your financial position when you do retire. This can mean increasing regular contributions, making additional lump sum contributions or switching funds to lower risk options. Depending on your own personal circumstances, we can talk you through what the best approach is now.
What is the tax situation for my pension contributions?
It is safe to say that a pension is one of the most tax-efficient ways of saving money. Tax relief is the greatest benefit of saving into a pension. If you’re paying tax at 20%, then you’re entitled to 20% back on pension contributions. If you’re paying tax on your salary at the highest rate, then you’re entitled to get 40% back on any pension contribution that you make. So, it doesn’t cost as much as you may have thought to save for retirement. You can also benefit from higher limits for tax relief as you get older as these are age-related.
