Business Personal Finance

Tuesday 17 September 2019

Your Questions: The pub talk is about pensions - but surely I don't need one?

 

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Charlie Weston

Charlie Weston

Question: The lads down the pub have been talking pensions (yes, really) and I have been arguing that I don't need to do anything, as I should be OK on the State pension. I currently take home €350 a week and I will get €243 on the State pension in 23 years' time when I hit 68, so should be fine. Am I incorrect?

Answer: You state that a 30pc drop in your income from €350 to €243 when you retire wouldn't be that bad. Unfortunately, you are making a huge assumption, which is that the State pension will still be worth over 70pc of your income when you retire.

Firstly, your income may be subject to annual increases and you may be promoted which could increase the difference.

Secondly, our population is ageing relatively quickly which means in future years we will have more people in retirement and less people in the workforce.

This will put pressure on State funds to meet its pension requirements, according to Irish Association of Pension Funds CEO Jerry Moriarty.

We have seen increases in pension payments in the last couple of years, but there is a real possibility that future governments may, out of necessity, reduce this payment or may allow its value to eroded by inflation.

All of this means that you cannot count on the State pension to be 70pc of your current income in retirement in 23 years. You should consider taking out a small supplementary pension if you can afford it.

Question: I bought my 2005 Ford Focus 1.6 around five years ago now, and am thinking of changing it. I don't really need such a big car now since I've moved jobs to Dublin, but the main one is that my insurance is still very high despite having a full licence for six years, being in my early 30s, and having a full no-claims bonus. Would I stand to gain much in terms of reduced premiums from downsizing to a smaller car?"

Answer: Downsizing your car will have a positive impact on the cost of your premium, particularly given your clean record.

While the age and engine size of a car impact the cost of insurance, the effects are not always easy to predict and/or understand, according to the managing director of InsureMyCars.ie Jonathan Hehir. An insurer might attach a lower risk rating to a 2007 1.1 Litre Ford Fiesta, than it would a 1.1 Litre Peugeot of the same year.

Despite being very similar cars, insurers apply a wide range of algorithms and variables when assessing a customer's risk rating and profile.

Even slight differences in occupation when associated with a particular car model, can add to or subtract from a quote.

This means you should contact insurers with details of different models you are considering before making your final decision.

It is worth noting that the deals on offer are constantly changing, even within insurance firms.

This means the great deal that one insurer might offer you this year, might be the most expensive next year.

Question: I'm in a pension plan and just received my annual statement. While it has grown really well over the past 12 years since I started it when I was 29 (average of 9pc a year), the annual management charge is 1.1pc. I read that the new Government pension scheme called auto-enrolment will have a charge of 0.5pc, so mine seems high. Should I make changes?

Answer: Congratulations for taking out a pensions 12 years ago while you were still in your 20s and for taking some risk with your investment decisions.

Relative to the growth you have enjoyed, the annual charge seems to offer value for money, assuming that you are in a relatively small scheme rather than a big employer-sponsored scheme with thousands of members, according to Irish Association of Pension Funds CEO Jerry Moriarty.

While the Department of Social Protection is hoping that it can run the new scheme for a 0.5pc annual management charge, it remains to be seen whether it will be able deliver on this very low charge.

You could look at other funds that might be available to you and the charges on those.

However, while charges are a big factor in the value of your investments you also need to consider whether they are representing value for money.

You would not, for example, have been better off if your fund charged 0.5pc, but only had 4pc a year growth.

Need to know

Even slight differences in occupation when associated with a particular car model, can add to or subtract from a quote

You cannot count on the State pension to be 70pc of your current income in retirement when you are due to retire in 23 years from now

Irish Independent

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