BY JOHN ELLIS, FINANCIAL ADVISOR
This is pension season. For many people, the next few weeks offer an opportunity to put money into a pension and claim tax relief. The standard Pay & File deadline is this Saturday, October 31, with an extension to November 18 for eligible taxpayers who both pay and file through Revenue’s Online Service (ROS).
For everyone else, it is a timely reminder to check whether they are putting enough aside for retirement.
Most people I meet understand that having a pension is important. The latest Standard Life research, based on more than 5,000 adults across Ireland, backs that up, with around three-quarters saying a pension is essential. The worry is that understanding the importance of a pension does not necessarily mean knowing whether you have enough saved.
Among working adults, the proportion who feel financially ready for retirement has fallen from 37% in 2021 to 30% now. Only one in three adults say they know how much they will need to live comfortably. On average, people estimate that they will need about €2,000 a month after tax to cover essentials, rising to around €2,958 if they want money for holidays, hobbies and other spending. Those figures rise with household income, as you would expect.
These numbers raise a simple question: how many people actually know what their pension will provide when they stop working? The figures suggest there is a considerable gap between recognising the importance of a pension and knowing whether you are on track.
Retirement can last 25 years or more, yet many people are trying to save while paying a mortgage, raising children and covering education costs. For those in their late 40s and 50s, there may also be financial support for adult children who are still living at home. CSO figures show that the proportion of 25- to 29-year-olds living with their parents increased from around one in four in 2011 to one in three in 2022. That can leave parents juggling their own retirement plans with the needs of the next generation. It is hardly surprising that pension contributions sometimes slip down the list of priorities.
There is also a difference between men and women in how they approach retirement planning. The research suggests women are more likely to focus on immediate pressures, including the cost of living, mortgage payments and children’s education. Men are more likely to prioritise maximising their pension. It is worth asking whether this reflects a lack of interest or simply the competing demands on household finances.
The October/November deadline offers a useful opportunity to take stock. An additional pension contribution may reduce the income tax bill for 2025 while increasing the money available for retirement. To qualify for relief against 2025 income, contributions must meet Revenue’s applicable payment and claim deadlines. Tax relief, subject to Revenue’s age-related limits and the earnings cap, remains a valuable incentive for eligible savers.
Of course, nobody should put money into a pension that they may need for everyday bills or unexpected expenses. But if there is room in the budget, it is worth finding out what an extra contribution could achieve.
This is where advice can help. The Standard Life research suggests that people who engage regularly with a financial adviser are almost twice as likely to feel positive about their finances and clearer about what they need. A conversation with an adviser can help turn a vague concern about retirement into a more useful calculation, for example, what income might you receive from your pension, what might the State Pension provide and how much more might you need to save?
You do not need to predict every expense for the next 25 years. But you do need a reasonable idea of what your retirement income could look like and whether it will support the lifestyle you want.
Pension season will not solve every financial worry, but it is a good time to act. Check your contributions, review your expected retirement income and find out whether an additional payment makes sense before the relevant deadline.
The cost of putting off the decision may not be obvious today, but leaving it nearer retirement is much harder to address.
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