Saving on deposit instead of a pension is 'likely to cost you thousands'
CONSUMERS are losing out by "over-saving" in deposit accounts and would be better off putting money into their pensions as additional voluntary contributions (AVCs), a leading financial adviser has said.
People were too focused on short-term concerns, while losing sight of long-term issues like saving for retirement, Fionan O'Sullivan of IFG said.
The pensions adviser was responding to reports that consumers are continuing to put more of their hard-earned cash on deposit for a rainy day.
But Mr O'Sullivan said some of this money should be redirected away from deposit accounts and into pension funds, through additional voluntary contributions (AVCs)
The leading pension provider said that pension savings will typically be worth a multiple of bank deposits over the long-term.
"Those who aren't considering this option, and stick to bank deposits, are likely to lose out on thousands in their retirement as a result," Mr O'Sullivan said.
He said many advisers were losing sight of looming long-term concerns -- such as how we are going to ensure that we have provided ourselves with sufficient finances that enable us to live in retirement.
"While pension investment returns are slowly improving; deposit rates offered by banks are dropping," Mr O'Sullivan added.
"When compared with deposit rates on offer, the benefit of putting any extra cash into your pension fund becomes more apparent."
Someone who puts a one-off sum of €100 into a deposit account would have only €128 after 25 years, based on an annual interest rate of 1pc.
But €100, put into a pension, would grow to €513 after 25 years.
This is based on the planned lower tax-relief rate of 33pc, with existing taxes and deposit taxes (DIRT) excluded.
"It's imperative that consumers ensure that the majority of their assets are achieving a reasonable rate of return if they are to realise the potential of a comfortable retirement," Mr O'Sullivan added.