Overcoming the biggest hurdle to starting a pension
The half of Irish adults who do not have a pension should start to think about getting on the right track for retirement, writes John Cradden
Published 28/04/2016 | 02:30
YOU could have a field day exploring the many reasons why half of Irish adults don't yet have a pension plan, but there's no doubt that taking the first step is often the hardest.
"Pension apathy is a big problem in this country," said Jerry Moriarty of the Irish Association of Pension Funds. "It's believed that the first step of setting up the pension is often the biggest hurdle. Once you have done this, then you are more likely to continue a savings habit for the rest of your career and give yourself a better chance of having a substantial pension pot for your later years."
It's somewhat ironic that, according to a recent survey by Irish Life, the age group that is least likely to have a pension plan - those aged 25 to 34 - are also the most optimistic about life after retirement, with two-thirds stating they have no plans to work at all after retirement.
Contrast this with what you might interpret (and Irish Life certainly does) as a lack of preparedness for retirement by those already over 65, who made up half of the 30pc of people who said they had no plans to retire.
Of course, longer life expectancies will play a part in this. Gerry Hassett, managing director of Irish Life Retail, told a recent conference on pensions that actuarial research is showing that "50pc of females currently aged 65 years have a 50pc chance of living beyond 91, and as many as 25pc are likely to live beyond 97 years". For males aged 65, the figures are lower, with 50pc expected to live past the age of 87, and 25pc of these beyond 93 years.
But once you realise that relying on the State pension will only be enough to just keep you out of poverty, the other big question is how much you should put by?
Only 29pc of respondents to the Irish Life survey said they knew how much they needed to live on in retirement.
"In short, something is better than nothing," said Mr Moriarty. "Generally, it is recommended that people put aside approximately 10-15pc of their salary for their pension. However, this depends very much on your personal circumstances and your income needs in retirement.
"Even if you can't meet this recommended contribution rate, then it is still very much worth your while putting in what you can for now."
Needless to say, you will get tax relief on your pension contributions to approved plans, but the extent of this relief generally depends on your age - the older you are, the more generous it is.
For instance, if you're under 30 years of age and you contribute more than 15pc of your net earnings, you will only get the relief on the first 15pc. Between the age of 30 and 39, this limit rises to 20pc, and to 25pc for those aged 40-49 and so on up to a maximum of 40pc the over 60s.
However, the Irish Life survey shows that of the half of workers in the private sector who have a pension plan, the average contribution rate in a typical defined contribution company pension plan is still only 10pc, even though the average age at which these workers start a pension is in their mid-30s.
"My advice to someone considering contribution rates would be to talk to an independent financial adviser," said Mr Moriarty. "Put in what you can for the moment and then review your contribution rate on a yearly basis.
"When you receive your annual statement is a good time to do this. If you can grow your contribution level incrementally, particularly when you get pay increases, then you will be on the right track for retirement."
The other consideration when starting a pension plan is the risk factor. Another recent Irish Life survey on attitudes to investment risk showed that Irish people are generally conservative investors, with four in 10 saying they are cautious when it comes to investing.
"Taking a very conservative position is generally fine if you are relatively close to retirement, particularly where you've amassed a considerable size fund, and will need to call on it in the next few years," said Mr Moriarty.
"However, if you have decades left before retirement, while opting for the most conservative investment options may appear to be the safe option, it could prove to be the riskiest option in the long-term if you don't generate enough growth.
"Attitude to risk is very personal as will be a person's needs in retirement so they should get specialist investment advice when reviewing their investment options."