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

If you follow this regular advice column you’ll note that there is a heavy bias towards retirement planning. As a Financial Advisor for the construction sector, I meet many members of the sector’s two big schemes, CERS and the Construction Workers Pension Scheme.

My concern is that private pension coverage in Ireland is low, with only a third of private sector workers saving for retirement. This means that two thirds of the population will be solely reliant on the state to provide for their income in retirement.

Let’s dig down deeper!

We pay PRSI contributions and the state promises to pay us a pension to replace our income when we are no longer working. From March 2018, the full contributory state pension will be €12,651.60 per annum. However, currently, the state doesn’t set aside money meet this promise. They pay it from the exchequer (tax take) in the year it falls due.

What’s wrong with this?

Well, currently there are about 5 people working and paying tax for every person in receipt of the state pension – but a shift in the demographic means that by 2050 there could be only 2 people working for every retired person. This puts significant pressure on the state’s finances. Of course we’ve known this for some time and an OECD report in 2012 highlighted this and recommended the implementation of a later state pension age and the establishment of a mandatory pension scheme for all workers.

The state pension age was indeed pushed out. The qualifying age is currently 66; it will increase to 67 years in 2021 and to 68 years in 2028. It is widely discussed that a state pension age of 70 is likely to be introduced at some point also.

However, while there has been a lot of noise about a mandatory pension scheme nothing concrete has materialised so far. Many of our European neighbours are up and running with this and are seeing significant increase in their private pension coverage.

What is a mandatory pension scheme and how could it help?

A mandatory pension scheme would mean that all employers, big and small, would have to contribute a specific amount or percentage of salary for all workers. It could most likely be quasi or soft mandatory, meaning people would be automatically enrolled in a scheme but could opt out if they wished. This would have the effect of increasing private pension coverage in this country.

In 2012, the OECD reported that countries with mandatory or quasi mandatory workplace pensions has 70%+ coverage and that same year the UK rolled out its own auto enrolment scheme. Although this scheme started with only the largest employers it will be mandatory for employees in 2018. Early evidence sees only approx. 9% of people opting out. While this number may rise somewhat in 2018 – it still represents a huge increase in providing pension coverage.

The Sectoral Employment Order (SEO), recently signed into law, provides for mandatory pensions for specified construction workers. I commend the industry for this move – it ensures that an entire sector of workers are covered and the construction industry is a couple of steps ahead of the state when it comes a mandatory pension.

Any other issues?

As we know well, there is a housing crisis in Ireland. More and more of the population are in rental accommodation, paying high levels of rent and may never afford to buy homes. When this group of people reach state pension age, how will they pay rent? The state pension levels as they are, (and are likely to remain) will not cover the cost of rent. This will put further pressure on the state finances in future years.

It is a matter of some urgency that these issues are addressed so that this ticking time bomb is diffused.

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

With effect from December 2017, self -employed people in Ireland have finally became entitled to long- term sick pay. This is great news for this cohort of people, who typically have been treated unfairly in Ireland, especially when you consider that OECD figures show close to 20% of the Irish workforce are self- employed. Tradespeople in our Industry would make up a significant portion of this.

The invalidity pension is a weekly rate of €198.50, with possible increases for an adult dependant and child dependants is a payment for people who cannot work because of a long-term illness or disability, and is not means tested.

Now for the gloom…

Did you know that during your working life, being diagnosed with a serious illness is a greater risk to you than death? The Life Assurance industry claims experience tells us that you are likelier to suffer from Cancer, a Heart Attack or a Stroke before you retire than you are to die before age 65. While we welcome the revised eligibility to the invalidity pension, it will only bring in just over €10K per annum. Can you (& your family) live on this?

While many of us have some form of Life Cover in place, through mortgage protection & other policies, most are unfortunately lacking in financial protection in the event of a serious illness. There are protection options available to you. Making ends meet should be the least of your concerns if you cannot work due to illness.

What should you do?

A new year is a good time to review your situation and put a financial plan in place. When you are self-employed, you do not have the luxury of protection policies provided by your employer and so it is up to you to make sure you are covered.

Planning helps to maximise the efficiency of your money and to do that it is important to know where you are. Many of us have some idea of our income vs our outgoings. We know our income, and our fixed expenditure such as the mortgage. However, achieving a more realistic picture requires a little more effort. You will need to look at outgoings that only happen on a quarterly or less frequent basis. All banks have online facilities that provide statements going back a year or more, and the frequency with which we use Visa means that there is much of the data readily available to look back at recent habits. Furthermore, with PSD2 now in effect from January 2018, there will be floods of fintech apps that will be able do most of this work for you.

Where you are at in your financial life cycle will help clarify what level & type of protection you need. If you have no family and no debt, you may only require income protection – to replace an income if you were unable to work due to illness or injury. On the other hand, if you have a family and mortgage, you are likely to need a combination of Life Cover, Income Protection and Serious Illness cover. Balance is key and sitting down with a financial adviser will ensure you have the best cover for you.

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

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