The most recent Central Statistics Office (CSO) report into pensions coverage was released earlier this year and showed quite a surprising number. According to the CSO, 56 per cent of people in employment in Ireland have a pension - that’s over half the working people in Ireland. You rarely read articles or hear anything about this “silent” majority.
My name is John and I have a pension
If you are one of this silent majority, this article is for you
Firstly, well done. Starting a pension is a hugely positive step in providing for you and your dependents' future. Pensions remain the most tax-efficient way of saving money both in terms of reducing the amount of tax you pay now and it’s potential to reduce the total tax you pay in your lifetime.
The importance of being advised
If having a pension is one positive step, the really positive giant leap is getting regular advice. There is no doubt about it but pensions are not straightforward. In order to get the best out of your pension; you really need to talk to a financial broker or advisor. They will be able to guide you in terms of what to pay in, what funds to invest in, how much you may need at retirement, how your pension fits with other financial needs or savings and, ultimately, how best to take this pension when you retire.
What happens at retirement?
This last piece, how best to take your pension when you retire, is a very significant consideration. On reviewing your pension documentation you may see references in relation to taking your pension. These may include a retirement lump sum; an Approved Minimum Retirement Fund (AMRF); an Approved Retirement Fund (ARF); a Vested Personal Retirement Savings Accounts (PRSA); an annuity (with various options). All of a sudden the idea of “taking your pension” feels less like something to look forward to and more akin to an unwanted medical procedure.
Irish Life’s advice is to get advice
The earlier you think about and plan for retirement, the easier it is to turn “taking your pension” into something you actively look forward to and can embrace. While it is never too early to start your pension, we recommend that from age 55 onwards, you start to seriously focus on your timelines to retirement and what your intentions are. Retirement has changed hugely in recent years, with more people continuing to work long beyond the traditional retirement age of 65. The State Pension age will increase again in 2021 and in 2028, so this might well impact when you are financially able to retire.
From age 55 to the point you do “take your pension”, we strongly recommend meeting your financial broker or advisor at least annually. They will ensure that you remain on track, that you are maximising tax relief, and that as you reach the long-sought retirement date there are no surprises. Over this period, your broker or advisor will ease you into the world of retirement options, so that you become familiar with the options available to you.
Retirement options
As mentioned above, the range of options is wide and will depend on the details of your specific pension pot(s). In general, at retirement you will be entitled to take some of the pot as a lump sum, some or all of which may be free of tax (usually at least a quarter of the pot). This lump sum forms part of the total assets you will live on in retirement, so while the idea of receiving a nice lump sum tax-free is pleasant, it is important to talk to your advisor or broker about how best to invest this money and ensure that it fits with how you take the rest of your pension.
With the remainder of your pension pot, you broadly have three options; keep it invested, buy an annuity (pension for life), or take as a lump sum. You could even choose a mix of these three.
Importance of advice
The important point is that having made the decision to start a pension it is vital that you get advice on the best options for taking that pension. The best option will depend on your circumstances – additional income you have, other assets and liabilities. Are you continuing to work? Have you dependents? How is your health?
Your financial broker or adviser will talk you through all of this and work out, with you, the best options.
So, if you are one of the 56 per cent of workers in Ireland with a pension and you are reaching an age where retirement is no longer a speck in the distance, our advice to you is to get advice now.
Talk to your financial broker or advisor, or visit irishlife.ie/plan-your-retirement.