BY JOHN ELLIS, FINANCIAL ADVISOR
MORE than 40% of Irish workers have made no pension provision and will be entirely reliant on state supports when they retire.
Statistics issued by the Central Statistics Office (CSO) show that people tend to leave it late to start contributing to their pension. The survey shows just six out of 10 workers aged 20-69 have private pensions.
Pension coverage remains lowest among younger workers. More than eight out of 10 workers aged 20-24 do not have a pension. Just under half of 25-34-year-olds have a pension, while pension coverage is greatest among workers aged 45-54, where it is nearly three quarters and a little over half of self-employed people have pension coverage.
There are a range of retirement structures available for everyone, even those in unpaid occupations e.g. homemakers and are flexible enough that there is really no excuse not to make some provision for old age.
The monies invested into a pension attract tax relief at your marginal rate, if you pay tax at 20% then for every €100 you invest you receive tax relief of €20, net cost to you €80. And at the top rate – 40% for every €100 the nett cost is €60.
The money invested attracts growth and this growth is not subject to tax in Ireland.Everywhere you invest money the interest accrued is taxed, but not so with a pension. At retirement you can take 25% of the total fund tax free, (up to €200,000 after which there is a sliding scale) then depending on your income in retirement tax payable could be quite low.
So why such a low uptake. There are many excuses but the validity of these is at best questionable.
“I want to live for the moment and enjoy each day as it comes… I could be dead tomorrow.” Even though life expectancy is rising there is a chance you may die before retirement but then again why be disappointed in your old age when you suddenly have to live of the Old Age Pension.
“I’m too late… there’s no point me starting now,” The assumption being there is an age limit when it is too late. Even managing to put away a small amount for your remaining working life can give some lift to your income in retirement.
“I’m too young… I don’t need to worry yet!” The earlier you start saving for retirement, the more time your pension has to grow. In some periods and certain funds, values can double in growth over a ten-year period. Also, the longer you leave starting the greater the amount you must invest to get the same outcome.
“I don’t have enough left over after the bills to put into a pension.” Define enough! Any amount will be of benefit when you come to retire. Take stock of your spending with a budget plan. You will be surprised where you can make savings. Do you have a Revolute account – the spending breakdown app will open your eyes!
“I don’t pay tax.” This no longer holds water since the advent of the Personal Retirement Savings Account. (PRSA) Through the PRSA you can save for retirement and even though you don’t get tax relief on contributions for whatever reason you still can invest into an account that grows tax free and at retirement take 25% tax free.
Setting up or reviewing your pension is not all that difficult and with the help of a Financial Advisor you can be on the road to a comfortable retirement.