It may be well established at this stage that CPAS are considered to be the pension provider of choice for the construction sector, however, it has become quite clear to us in recent times that some might consider the ‘construction sector’ to include only those who work on sites, so we ask the question; are pension savings only for site workers?

Since the introduction of the Sectoral Employment Order (SEO) last year, and the conversations around the #BuildingEquality campaign including the gender pay/pension gaps, we’ve had many discussions with company owners and office staff regarding their own pension provision. These conversations usually take place when they contact us to set up or discuss their site workers’ pensions or when we are arranging site visits to give toolbox talks to their employees in the Construction Workers Pension Scheme (CWPS).

The team at CPAS receive regular phone calls from office staff who manage the pensions for their site workers but they never consider their own savings for retirement. When we ask them about their own pension savings we regularly hear ‘I don’t work on site’, ‘I didn’t think office staff could be included’, ‘I wouldn’t know how to go about it’. It should be said loud and clear – CPAS have a pension solution for the entire workforce in the construction industry.

This includes office staff and management, not just those who work on site. From a survey in 2017, it was found that only a third of private-sector workers in Ireland have a pension plan. Furthermore, 60% of those without pension savings said they don’t actually know how to start one. If you are one of the two thirds who do not have a pension plan in place and think you don’t need to save for your retirement, I give you three points to consider – the State pension amount, service gaps and longer life expectancy.

CPAS

Firstly, think of your annual take home pay which you currently live on. Now, compare that figure to €12,652. Do you think you can you live on this amount a year? This is the current maximum State pension amount. Will this amount enable you to do all those things on your bucket list that you’ve planned for when you’re finished work?

During your career, have you already or do you plan to take a break for one reason or another? Maternity or paternity leave, home care, rearing of children or just a career break to travel? If you do, this can affect your State pension entitlements and can also reduce the number of years you have to save towards your retirement.

On a positive note, our life expectancy is increasing; 50% of those born today are expected to live to 100. Indeed some of our CPAS members in receipt of a monthly pension have reached the age of 100 with the oldest being 105! As well as this, the state pension age is increasing and will rise to 68 by 2028. While living longer is good news, this also means that our savings will have to stretch further and last a lot longer. Will €12,652 a year be enough?

Taking these points into consideration, it makes perfect sense that everybody who works should be saving towards their retirement. Indeed,the government have issued a Roadmap for Pensions 2018 to 2023 where they are looking to make pension savings mandatory in the next 4 to 5 years.

With the introduction of the Construction SEO in October 2017 and the Mechanical SEO in March 2018, the construction sector have taken the lead in providing pension cover for their workers covered by these SEOs but let’s not forget about all the other workers in the construction sector who may not come under the cover of the SEOs. Now is the time for the construction sector to make a difference to the future of all their employees through pension savings.

CPAS can facilitate this on the same terms as site workers through the Construction Workers Pension Scheme (CWPS) or we can design bespoke pension arrangements for individual employers and members through the Construction Executive Retirement Savings (CERS). For self-employed individuals in the construction sector without pension cover we can also provide cover through the Construction Industry Retirement Trust (CIRT). As the pension provider of choice for the construction sector CPAS knows your industry, so don’t hesitate to call us today and we can get you started!

If you have a pension plan do you read and understand your annual benefit statement? If you don’t here’s some free advice!

In Milestone Advisory, I spend the majority of my time with clients who are approaching retirement or who have already reached this particular milestone.  This part of the financial lifecycle is about taking stock of what you have already accumulated in pension funds and how to maximise its benefits into the future.

Often, it is not until this point that people look for advice around their retirement planning.

I met a couple recently who were decidedly different. They “hadn’t a clue” about pensions, but they had both recently turned 50 and felt they needed some help. While both had accumulated pension funds over the course of their working lives, they did not know what these funds meant for their financial future.

At the end of this particular meeting, I felt that the information I provided and explained was the sort of information everyone needs:  So, here it is – for free.

Both of my clients, having been in pension schemes since their early 30’s felt “that box was ticked”.  This might once have been true; if you joined a company in your early 20’s and stayed there until your 65th birthday with a pension promise of 2/3rds your final salary.  However, defined benefit pensions, where your income in retirement was defined at the outset are no longer the standard type of pension.  Nor is staying with one employer for life.  Now, the vast majority of all pensions are defined contribution i.e. the only thing defined is the pension contribution being invested.

Annual benefit statement 

In this case, you will need to understand what the contributions will translate to in income terms when you retire.  This is where your annual benefit statement comes in.  Each year, your provider will send you such a statement, outlining the contributions that have been paid in along with the current value of your fund.  It will also lay out a set of figures that show you the value of your income in retirement based on these contributions.

It is only when you read and understand this that you can decide if the “pension box” is ticked.  It may be that you are on target for a financially comfortable retirement or you might be surprised to learn that there is a gap between what you will need compared to what you have.

A pension scheme is simply a tax efficient long-term savings plan, but knowing what the outcome will be at retirement is vital.  It is the key to ensuring you have time to enhance your savings should you require.

It is crucial that you take some time to read your defined contribution (DC) benefit statement each year.  Although the layout varies between providers, legislation dictates that all providers include the same information.  This includes your personal information, salary details, your pension contribution level and a statement showing contributions remitted to the scheme in the year since your last statement.  You should take a look over this information to ensure it is correct.

The key area is what is known as a statement of reasonable projection.  This is where you will see the details of your projected benefits at normal retirement age, based on a set of certain assumptions.

While this is not a cast iron guarantee of what will be available to you at retirement, it is the best estimate of what your future fund value and pension will be and the only way you can establish if your contributions into your pension will provide you with meaningful income in retirement.

 

Time to review

Back to my new clients, a couple in their 50’s, with a file full of unread benefit statements.  We looked at each of their most recent statements.  Both were happy with their fund values, surprised they had saved so much over the years.  Both equally surprised by how those fund values translated into income in retirement.  Taking into account the fact that their mortgage would be paid off by the time they retire and that they would both be entitled to the contributory state pension when they are 68 they still saw a potential shortfall in their desired income.  Finding out now at age 50 gives them close to 20 years to address this.  Rather than at 65 or 68 when they go to collect.

 

For further information please contact Susan O’Mara at: susan@milestoneadvisory.ie or phone: 01-4068020

Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.

 

Making contributions to a pension plan could be the answer to reducing your tax bill.

Did you know that you can make a contribution to a pension plan before the 31st October each year and claim tax relief for the previous year?

October 31st (or 12th November 2019 if you use the Revenue Online Services (ROS) to pay your tax bill) is the final date on which you can claim tax relief on backdated pension contributions, in other words, this is the last chance to get some money back from the tax man for 2018!

If you are a PAYE employee and you pay a lump sum Additional Voluntary Contribution (AVC) by cheque/Direct Debit and claim tax relief on this AVC by 31st October you can get tax relief in respect of the previous calendar year.

For example, if you pay a lump sum AVC by 31st October 2019 you may get tax relief in respect of any unused tax relief for 2018 providing you claim this relief from the Revenue by the October 31st 2019.

Example

Additional Voluntary Contribution paid 25 October 2019          €2,000

Reduction in 2018 tax bill (40% tax payer):                              €   800

Actual cost to you of additional €2,000 into your pension:       €1,200

 

Self-employed people can also claim back some tax:  Let’s say you have a bill of €10,000 for 2018 and preliminary tax of €10,000 for 2019 to pay by 31st October 2019. You could pay Revenue the €20,000 and this job is done for another year or you could make a payment of €5,000 to your pension. This will have the effect of reducing last year’s tax bill by 40% of that €5,000 (i.e. €2000).  As preliminary tax for 2019 is 100% of last year’s bill, you also reduce the preliminary tax by the same amount (i.e. €2,000).

So, you could pay Revenue €20,000 or you could put €5,000 in your pension and pay Revenue €16,000 (i.e. €20,000 – €2,000 – €2,000). Your total spend is only €1,000 more but for that extra €1,000, you pay Revenue the amount due and also have €5,000 in your pension fund – it’s a win win situation!

The following table shows the percentage of your income that you can get tax relief on when contributing to a pension plan, depending on your age and subject to a current maximum annual earnings amount of €115,000p.a.

Remember Saving for your retirement is still incredibly tax efficient.

As well as tax relief, the funds in which your contributions are invested currently benefit from tax-free growth, unlike most saving methods which may be liable for DIRT Tax or Capital Gains Tax. This means pension funds benefit from being able to reinvest the non-taxed returns to generate higher future returns and should build up quicker than a fund that has to pay tax on its investment returns.

Also, when you retire you can take part of your pension fund as a tax-free lump sum. The amount you can take depends on the type of pension plan you have in place. It is important to remember that your regular pension income or Approved Retirement Fund ARF may be subject to tax.

 

For more information please contact CPAS at 01 407 1400 or email info@cpas.ie