In the latest edition of Irish Building Magazine , Susan O’Mara of CPAS explains why now is the time to take control of your retirement planning.
If you haven’t already started saving for retirement, it’s not too late. The current tax relief available within the pension framework was designed to allow older people save more money. As you can see from the table below, from age 50 the percentage of your salary, on which tax relief is available, increases from 30% up to 40% by age 60. This is capped at an earnings limit of €115,000.
If you have already started saving and have built up some level of retirement fund, it is important to actively review your pension and take the necessary steps to optimise the financial outcomes, well in advance of your retirement age.
Do you regularly read your benefit statement?
Irrespective of the type of pension arrangement that you have, you will be receive an annual benefit statement from your pension provider. For the majority of people, the benefit statement is filed away for review at another stage. This document not only sets out the value of your pension fund on an annual basis, but also some helpful illustrations of what the value of your fund will be at your retirement date. These “future projections” should inform the actions you take now, whether it allows you to relax, knowing your fund is healthy, or try to make additional contributions.
How are your retirement savings invested?
Your benefit statement will also tell you how your money is invested and the choices you can make regarding this investment (known as your “Fund Choice”). A large proportion of people don’t deviate from their initial choice, or the default provided over the course of their working life. It is with this in mind that many pensions fund providers these days provide a “Lifestyle Strategy” built into them as a default.
A Lifestyle strategy ensures that the fund in which your retirement savings are invested in will automatically change its asset mix, on a gradual and regular basis as you move closer to your normal retirement age. Typically, these are structured to reduce the investment market risk in the run up to retirement. With many funds, the inbuilt Lifestyle strategy will take effect in the mid to late 50’s, for others it could be as early as 50. It is important to know if this applies. It is also important to know if it fits in well with your post retirement plans. Which brings me to my final point.
What to do with your money at retirement?
There are different types of pension vehicles on the market and as such, there are different ways pensions are calculated at retirement. Understanding your options will be an important factor in decisions you might have to make in advance of your retirement. If you are in a standard defined contribution company pension scheme, for example, you will have the option of taking a tax-free lump sum and using the balance to buy either an annuity or investing the balance in an Approved Retirement Fund (ARF).
Annuity versus ARF
More people than ever before are opting for the latter, but what are the differences? At a basic level, the annuity option is essentially taking the value of your retirement savings at your retirement date and giving them to a provider in return for a guaranteed income. The income that you will receive is dependent on your fund value, your age and health. In some instances, some additional bells and whistles can be added on.
On the other hand, the ARF is keeping ownership of the fund and investing it further, while drawing an income from it throughout your retirement. There are advantages to both options and choosing the one that suits you is based on a range of individual factors.
However, having at least some idea of what you plan to do is important, particularly where your investment fund choice is concerned. If you are most likely planning to invest in an ARF, you should ensure that the fund, in which your money is invested, in the run up to retirement, is not geared towards an Annuity – this is where your benefit statement comes in!
Finally, you should be aware that if you are in your 50’s, the State Pension, which forms a substantial part of post retirement income for many people in Ireland, is only available to you from age 66. If you are planning to retire earlier than that, this must be factored into your retirement plans. These small few steps can make all the difference to your income when you finally do retire.
Planning for your future
As in life, there are many variables and changes. Planning for retirement and protecting your financial future involves forming expectations about income and expenses over the rest of your life, based on present assumptions. As the pension administrator for pension schemes in the construction industry, we have a range of solutions to help you prepare and protect your future investments. Whether you are self-employed, running a large company with multiple staff requirements, looking for life and income protection, we can help.
For more information and to find the right solution for you, contact our team for a no obligation discussion. Our team of financial specialists will put you in touch with the right team member. No obligations, no hidden fees, no jargon – just a straightforward chat to help you secure your present and your future.
Contact us via email (info@cpas.ie) or by phone (01) 223 4949.
