We all know the many good reasons to contribute to a pension arrangement – but when setting up a pension plan or reviewing your current arrangement, what is important? In this edition of Irish Building Magazine, we offer five points that we believe you should always consider.
Will the pension plan meet your needs? The most important place to start is at the end! When you actually approach retirement and want your pension to start paying out (instead of you continuing to pay in), will your pension provider meet your requirements? Do they offer you a lifestyle investment option nearing your retirement to help you to lock in your gains?
If you decide to choose the pension route, do they offer competitive annuity rates at retirement? If you wish to take a retirement lump sum and transfer to an ARF/AMRF, can they facilitate this themselves or through a partner? The time to find these out is at the very start!
- How much are you paying in charges? Charges are deducted from your pension fund to cover a whole range of services, including administration, fund management costs, trustee costs and 3rd party adviser costs. These are typically bundled together to make them easier to understand and simpler to apply. Charges can have a significant impact on your pension fund. They are necessary for the effective running of a pension scheme, but should be kept to the minimum possible. Beware of funds with many layers of charges, which are complicated to understand. You should always veer towards pension plans with very transparent charges that are easily understood. After all, it is your own pot of money that is being reduced by these charges!
- Investment choices: Your pension arrangement should offer you a diversified range of investment options that can meet your changing circumstances over time – this doesn’t mean that there should be hundreds of funds to choose from – but the options available should cover all the asset classes, i.e. Equities, Bonds, Cash, Property, Alternatives etc. and should be sufficient to offset the main investment risks. The Pensions Authority suggests a choice of between 5 to 7 funds. Almost 85% of members generally choose the default option, so it is vital that if you choose this option it is suitable for your needs and your ultimate retirement goals. Any fund choices you make should be based on the level of investment risk you are comfortable with and should take into account your financial circumstances and goals.
- Good service from an experienced pension provider: It should be a given that your pension provider has the required experience and the systems in place to administer your arrangement in accordance with all the regulatory requirements. Nevertheless, you also need to be confident that they have the quality people and processes to provide you with the information and services you need in a timely manner. So before you take out a pension plan,ask the necessary questions to get a sense of the service you can expect – What online access to information is available? Are they flexible to meet your needs? What qualifications do their staff have?
- Security and Governance: Another of the most important features of pension arrangements is that the money invested on behalf of members is kept completely separate from the company’s own money. It is only there for the members when they retire, and cannot be accessed by the employer or a creditor if the company should run into trouble.
Many employers appoint what is called a “Corporate Trustee” to oversee the management of their pension scheme. This offers an important additional layer of independent protection for employers and employees, and removes the burden from employers of being a Trustee themselves, or hiring a company to provide this service. When choosing or reviewing your pension arrangement these are some of the points to consider but ultimately, the aim of your pension is to provide you with an adequate income in retirement to allow you to maintain a good standard of living.
CPAS is the scheme administrator for pensions in the construction sector. We work with Members to develop a clear vision for the future and identify achievable goals before working with them to create a plan of action that they can implement today. For help planning your future, contact a member of our team via info [at] cpas.ie