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.