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

 

Famed economist and Nobel Prize winner Harry Markowitz called diversification “the only free lunch in finance.” The thought is that by diversifying, an investor gets the benefit of reduced risk while sacrificing little in expected returns over the long run. Diversification is a technique that reduces risk by allocating investments in various different asset classes. Diversified portfolios should (in theory) provide a ‘smoother’ return without the large highs and lows i.e. volatility, associated with equities. It aims to maximise returns by investing in different assets that would each react differently to the same event. Although it does not guarantee against loss, diversification is the most important component of reaching long-term financial goals while minimising risk. Remember, however, that no matter how diversified your fund, risk can never be eliminated completely.

 

The rise in Alternative Assets

For many years pension funds have diversified portfolios by holding equities and bonds. For the most part, these two types of investments behave differently, for example; bonds traditionally offer some protection when there is an equity sell-off. However within the last decade pension funds can now access a new asset class, alternative assets as another tool for driving portfolio returns and increasing diversification.

Alternative investment is a term for any investment that does not fall into the traditional equity or bond category. It includes relatively easy to understand assets such as commodities (gold, oil, aluminium etc.) and real assets, such as property, forestry and infrastructure. It also covers more complex unconventional strategies such as hedge funds (or absolute return funds) and private equity funds.  The main reason to invest in alternative assets is diversification i.e. to seek an alternative source of return, ideally a source of return that has a low correlation with the return from equities.

In CERS we have increased our allocation to alternative assets over the last number of years. Members have exposure to alternative assets by investing in the Default strategy.  The CERS Multi Asset Fund is a highly diversified balanced fund and members can also invest directly in the CERS Alternative Asset Fund.

For further information regarding the CERS suite of funds please call 01-4071430 or visit our website www.cers.ie

 

John Geraghty, Pension Consultant, Construction Executive Retirement Services (CERS)

 

This article provides a summary and is for information purposes only. It does not constitute advice or a recommendation and it does not take into account your knowledge, experience, investment objectives or financial situation. You should always consider taking independent financial advice when reviewing you investment choices

If you are self-employed, you will more than likely be relieved that the tax deadline has come and gone again. Accountants have been paid, all expenses have been gathered and many of you have made pension contributions to reduce your tax liabilities. Everyone has now hopefully closed off their 2017 tax liabilities and the self-employed have made preliminary payments for 2018. If you are an employee in a pension scheme, your chance to make a backdated Additional Voluntary Contribution (AVC) for 2017 has also passed. 

The one thing you can be certain about is that the tax/pension deadline will appear again in 2019, and you will face the same challenges of paying your tax bill and looking for ways to reduce it. Making lump sum pension contributions is a great way of reducing your tax bill, but it also can be a significant drain on your cash flow. Furthermore, as an employee, you may also be leaving it to the last minute to make an AVC.

There is a better way…

Rather than face that cashflow drain trying to come up with a lump sum pension contribution, it makes far more sense to spread the pension contribution throughout the year. Starting now… right now.

Here are three good reasons why it makes a lot of sense to make regular, smaller pension contributions throughout the year rather than one big payment at year end.

Easier on cashflow
Everything is easier when we save for it. Whether you are putting a few euro aside planning for Christmas expenses, saving up for your summer holiday or indeed making a big purchase such as a new car or home improvements, saving for these always makes life easier in the end. The exact same principle applies to your pension.

Making a regular contribution amount every month (for example say €1,000 per month) is far easier than coming up with €12,000 at the end of the year, particularly as you may also have a tax bill to pay then! After a while of paying a regular amount out each month, you simply begin to notice it less and less as it becomes like another regular outlay. As a result of more money going out each month (but remember it’s going to you!), you are also much less likely to simply waste any surplus cash left over each month.

Finally, the good news too is that if you hit a blip with your cashflow, you can always take a break for a month or two from your pension contribution.

You’re paying yourself first
When you leave your pension contribution to year end, the amount tends to be driven by available funds at that point. All of your other expenses are paid at this stage and your tax bill has been looked after. Your future financial happiness that is achieved by your pension contribution is last in line – it is decided by what’s left over!

Starting today to make that regular pension contribution puts you at the top of the queue. This is known as automatic saving as it simply happens each month, rather than you having to actively do something each month. You’re the first person looked after, and not the last. Money goes into your pension fund each month, increasing your own future financial firepower.

Maximise investment potential
There are advantages to making regular or monthly pension contributions. The first is you will enhance the value of compound interest. We already know that compound Interest is beneficial, due the exponential value of interest on interest.

If we go back to the earlier example of €1,000 per month Vs €12,000 at the end of the year – consider this – for the first 6 months anyway, there may have been interest or growth on each €1,000 invested, adding greater compounding value than to the €12,000 in a lump sum.

This also works another way however. We know that when investing in the markets there are fluctuations in value up and down over the course of the year. Regular contributions may invest in both of these scenarios and consequently purchase more shares or units in the year (increasing value) than a once off lump sum.

Today is the time to act! Set up that regular pension plan and look after your most important financial challenge – your future happiness. Whether you are self-employed or an employee looking to boost your retirement funds, CPAS has a solution for you. Our award winning schemes with low charges and excellent investment choices offer you the solution you need. Please give us a call at 01 407 1400 or email info@cpas.ie

We were delighted with the success of the ‘Opportunities for Construction Companies 2019’ breakfast briefing we hosted at the Red Cow Moran Hotel, on 21st November last. The breakfast briefing, chaired by businessman Bobby Kerr, included speakers Oliver Mangan, Chief Economist, AIB; Terry McAdam, Management Consulting Partner, RSM; Mark Lohan, Managing Director, Brooks Group; and Jeanette Mair, Economic and Policy Research Executive, CIF. 

Opening the presentations, Jeanette Mair, CIF, discussed the €7.3bn in capital investment in 2019 boding well for the construction sector as well as the employment trends in the industry.

“Capital investment in 2019 will be 23.6% greater than it was in 2018,” she said, “and the amount allocated is broadly in line with the overall allocation set out in the National Development Plan (NDP) for next year.”

Jeannette also said that according to the Labour Force Survey by the CSO, nine out of every 10 jobs lost since the crisis have been recovered and one in every 15.5 jobs in Ireland is in construction.

Before providing helpful steps to improve construction prospects in 2019, Jeanette gave an insight into housebuilding and Capital Projects in Ireland as well as the drive for innovation in construction as part of her address.

“2019 is all about improving construction productivity, the construction industry has the biggest appetite for change and embracing technology”

She also reported that initial research findings by the CIF point to productivity improvements being driven by digital trends, labour shortages and efficiency gains.

Oliver Mangan, AIB, provided the economic outlook for 2019 with Brexit being the central theme.

He said that economic indicators remained upbeat and the unemployment rate was falling to 5.4% in 2018. He added there was still much uncertainty about Brexit and it is expected to lower the growth rate of the Irish economy. ESRI estimated that Irish output would be reduced over time by 2 – 2.5% on a soft Brexit and a sharp fall-off in trade with the UK would be likely on a no-deal, hard Brexit.

Terry McAdam, RSM, outlined the key challenges the construction industry may face in 2019 such as tight contract margins, managing operational contract risk as well as addressing the skills shortage and explained in his presentation how Lean may help businesses going forward.

“Lean being the form of continuous improvement,” explained Terry McAdam, “focuses outwardly on being flexible to meet customer demands and inwardly focused on waste and cost reduction in all processes.

“If you want to get involved in Lean methodologies, start with small steps.”

Terry introduced the 5S method as the early steps a company can take to reduce waste and improve productivity through maintaining an orderly workplace – Sort, Straighten, Shine, Standardise, and Sustain.

The final speaker of the morning, Mark Lohan, Brooks Group, looked at the sector as a percentage of GDP growing from 8% this year to 12% in 2023, underpinned by a number of Government-backed plans such as Rebuilding Ireland and Project Ireland 2040.

The insightful morning concluded with a panel discussion and concluded with questions and answers. The one issue that continued throughout the discussion was the importance of a skilled workforce and the sectors ability to attract the right people to deliver on future plans.

At CPAS, we see many facets of this complex issue of retaining and attracting key staff. While companies sometimes focus on salaries alone to attract employees, CPAS has helped many employers design a complete benefits package including Income Protection and Pension Savings to help retain and recruit skilled employees. Employers who invest in their people will have greater success, and CPAS has pension and benefit consultants available to meet employers and discuss a package that could give them the edge in this area.

You can talk to one of the team at CPAS by calling 01 407 1400. To view copies of each presentation please click here.

In her latest article, Susan O’Mara of Milestone Advisory highlights the importance of having a benefits package in place can have in retaining key staff or attracting new staff.

Susan writes, the “2018 National Skills Bulletin”, published by SOLAS, makes for interesting reading if you are running a company; you need to know what is in store for the labour market in your sector.

If you are a parent with kids pondering their choices for the CAO – it is also worth a read. It may give you an idea what of skills will be in demand when they are ready to enter the workforce in 2023 – 2025.

It may not be news to you that there are skills and labour shortages in the construction sector and that those shortages are for both professionals such as project managers, quantity surveyors and for trades people and general operatives. Considering this, it becomes all the more important that you have a competitive reward package in place in order to retain the key staff and attract high quality new staff.

There are thousands of scholarly articles online on the topic of how to attract and retain staff. They cover the hiring process, the efficacy of the people managers, training and overall work environment.

Finally, there is salary, which is the focus of this piece. While a competitive salary is important, it is not always the most important deciding factor for employees – so much as the overall benefits package is. The overall benefits package may include membership of a pension scheme, life assurance, health insurance and income protection. It may offer all or a combination of all, depending on the employees requirements.

What is included in a benefits package?

Along with salary, this usually includes an occupational pension scheme, into which an employer makes a pension contribution for their employee and most often, so too does the employee. Schemes can be designed to provide similar contributions for all staff, or, to reward experienced staff. One scheme does not necessarily have to have the same rates for all employees.

More often than not, there will be life insurance, also known as death benefit or death in service. This pays out a lump sum to the dependants of an employee on their death while an employee of the company. Once again, there are varying levels of cover and you can arrange different levels of cover, for different categories of staff.

Another cover that employees seek is health insurance, with new types of corporate cover popping up all the time. These provide tradition health insurance with added employee assistance programmes and employee wellness programmes.

My personal favourite benefit is income protection. Should you find yourself unable to work due to illness or injury during your career, who would pay your bills? Not your medical bills, but your ordinary living expenses? Your mortgage, utility, and such like. Income protection provides real peace of mind for employees around this. Furthermore, it is about 60% cheaper for an employer to provide this benefit under an employer sponsored arrangement than for an employee to buy an individual policy directly from and insurance company.

A fit Fit-for-Purpose Package

Having a benefits package in place is a good starting point, but is it fit for purpose? Does it suit the demographic of your workforce? A single 25 year old might be less interested in life assurance than a 40 year old with a young family. Neither the 25 year old nor the 40 year old may be enthused by the pension scheme that you are offering if you are not enthusiastic about the fact that you are offering it. You may need to highlight the value in the benefits you are offering, on a regular basis, to ensure that your staff fully understand and appreciate what they have and what it means to them and their future.

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.

In her latest article, Susan O’Mara of Milestone Advisory focuses on the need for us all to think about planning for the next 20 years rather than just on the year ahead when it comes to planning for our retirement. 

Susan writes – at this time each year, I would usually write nine things to do better in 2019 or alternatively, what is the outlook for 2019 or words to that effect!

When it comes to retirement however, the outlook has not changed in decades. When it comes to retirement in Ireland, the outlook is bleak. People are either uncertain about how they will fund retirement or, worse, not considering retirement at all. Not enough people are saving for retirement, and for those who are, there is a question regarding adequacy of their savings. It is with this in mind that this outlook focuses on the next 20 years, rather than next year.

Irish Life carried out some research recently, which highlights the change in demographics and how it affects pensions. They found that in the last 5 years there had been a significant increase in the population of over 65’s. This figure was 100,000* compared to an increase of only 44,000 for 15-64 years olds. I have been writing on the topic of the impact of an ageing population for some time now, however, seeing these figures really brings it home. If this is the age category growing the fastest, this is where the money needs to be, and for many, it is not.

This trend is expected to continue over the next 20 years, with a 70% increase in these figures. This would mean the over 65’s will be over 1.1 million in numbers. If you have read my articles before, you may already have read about the pressures this will have on the State Pension and general taxation and these are the hot topic issues, but there are other downsides.

If you are an employer for example, you may find it increasingly difficult to retire people at 65 or even up to 68. In 10 years, employees will not be entitled to their State Pension until they are 68. If at 68, that is all they have (currently just shy of €13,000 per annum) they may not be able to afford to retire. Employment law has made it increasingly difficult to discriminate on the grounds of age, and rightly so, however, employee attrition via retirement is natural and beneficial to both the company and the workforce coming up behind them. Without this, employers may find themselves in a situation where they have an ageing workforce, with no intention of retiring and therefore are not in a position to bring in new innovative staff. If employees have meaningful pension funds, retiring becomes an easier and more obvious choice.

Most of us already understand this on a basic level, but it is only when you personalise it does it fully sink in. Looking at it this way may help it sink in. Whether it is your workforce or your own personal retirement plan – it is worth taking your head out of the sand now.

Firstly, the government have finally decided to get tough with us on this and are currently engaged in the consultation process of a nationwide mandatory pension scheme, which should come into force in 2022. This is a good start and will be beneficial to many people not already covered by their employers for pension, however, this will take a number of years to bed down and for the contributions to add up and become meaningful. In 1992, Australia introduced a mandatory scheme, which now, 25 years later, has reversed the fortune of a vast number of people. However, while coverage has increased, the contribution rate is still being gradually increased and savers there know that they must make meaningful contributions into the scheme themselves.

Over the next 20 years, we should see a new landscape when it comes to pension savings and the first step of this is engagement from both employers and employees with regard to their part to play.

If you are still not convinced that the 20-year outlook could have a huge benefit if we engage with pension savings, consider this; a 30 year old earning €40K per annum making annual 10% pension contribution can build a fund at 65 of €392,872, whereas, if that individual puts off saving until they turn 50 and are saving 10% per annum of a salary of €65,000 will only save a fund at retirement of €149,693*.

Over the next 20 years, we can change our fate as a country and as individuals when it comes to our retirement. It’s time to get started – make it your 2019 resolution.

*Irish Life & CSO & Eurostat.

**Source – CERS Online Pension calculator

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.

Many of you may already be familiar with the Sectoral Employment Order (SEO) for the construction industry, this was the first SEO announced in October 2017 and written into law by the Minister of State at the Department of Business, Enterprise and Innovation. This SEO outlined rates of pay for specified workers in the construction industry, as well as pension, sick pay and death in service rates for those workers. This first SEO for the construction industry has now been followed by an SEO for the Mechanical Engineering Building Services Contracting Sector, which came into effect on 6th March 2018 and also outlines rates of pay for plumbers and pipefitters as well as pension, sick pay and death in service for these workers.

This is a very significant development and puts the construction industry ahead of the curve in relation to mandatory pensions. It places the construction industry in a leadership role in the pension space, as it is the first industry to be legally obliged to provide workers with a pension.

Until the introduction of the SEOs, construction industry employers were not legally obliged to provide their workers with a pension. The SEO changes all that; it is now compulsory for employers in the Construction and Mechanical Engineering Building Services Contracting Sectors to provide pension, sick pay and death in service provision for specified workers between age 18 and 65.

Mandatory pensions are coming for all

As already mentioned, the construction sector is leading the way, it is the first industry to be legally obliged to provide workers with a pension. The Government recently published their Roadmap for Pension Reform 2018-2023, which outlines a series of wide ranging reform proposals, one of which is a new automatic enrolment into a retirement saving scheme for employees in the private sector who are not currently saving for their retirement. Automatic enrolment is expected to be introduced from 2022. There will be three parties paying into the scheme for each worker – their employer, the employee and the State (via tax relief or other such mechanism). Workers will have the choice to opt-out, but if they did they could lose all of the contributions, and not just their own. The starting point though will be that everyone is included in a retirement savings scheme.

CPAS – the provider of choice for the construction sector

CIF Pension Administration Services DAC (CPAS) provides specialist and professional pension administration services to pension schemes that were developed solely for the construction sector.

The Construction Workers Pension Scheme (CWPS) is one of the largest private sector pension schemes in Ireland with over 25,000 members and supported by over 2,000 employers. CWPS provides pension, death in service and sick pay benefits for workers in the construction and related industries and is open to office staff as well as manual workers. CWPS is the scheme of choice for the construction industry and it satisfies the conditions of the new SEOs in relation to pensions, sick pay and death in service benefit.

CWPS exactly meets the requirements under the SEO and it has experienced significant growth in recent months as employers seek to meet their obligations and to provide the valuable benefits for their employees. For further information on complying with the new SEO legislation for pensions, you can see their website www.cwps.ie or you can contact a member of the CWPS team on 01 407 1444.

The Construction Executive Retirement Scheme (CERS) is an umbrella scheme providing pension and protection benefits to individual employers in the construction and related industries. It is particularly suited to individuals seeking higher benefits and greater flexibility than those available under CWPS. Through its flexible structure, CERS can meet the particular needs of each employer by providing bespoke and varying pension solutions for employees.

The Construction Industry Retirement Trust (CIRT) provides a flexible pension arrangement to meet the retirement planning needs of self-employed individuals and employees with no pension provision in place, who are employed within the construction and related industries.

Through our subsidiary, Milestone Advisory, we offer independent financial. Milestone Advisory offers impartial financial advice with an approach based on achieving desired outcomes rather than “product push”. Their aim is to build long-term, valued relationships with clients, helping them to achieve their financial objectives.

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

If you are unsure how best to proceed in the world of pensions, our team at CPAS will be delighted to guide you. For further information please contact us at (01) 407 1400 or by email at info@cpas.ie.

CPAS were proud to be Gold Sponsors at the Irish Construction Industry Awards held in City West on Thursday 14th June 2018.

The Irish Construction Industry Awards recognises and rewards companies who strive for excellence. As the leading provider of pension savings for the construction sector, CPAS think it is fitting that our business supports such a prestigious event and it was fantastic to see so many people from the industry in attendance. Read more