Starting a pension as soon as you draw income is a vital piece of long-term planning. If you haven’t already begun contributing towards your retirement, the second-best time is right now. Retirement is closer than it seems, and before you reach the age of 66, you should ensure you have a sufficient plan for the future.
Speaking with a qualified financial advisor can make financial planning, and by extension, pension planning, simpler. Knowing that your aim is finely tuned towards your financial circumstances saves you time, stress and money. Whether you require assistance in deciding upon your pension infrastructure or need to be pointed in the right direction for building retirement readiness, a qualified professional, such as those at FitzGerald Flynn, can be on hand to guide you in the right direction.
A pension is like a bank account, with a tax consideration. Like any financial instrument, ensuring that your contributions are appropriate and to your benefit is invaluable. Maximizing the amount available to you at the time of retirement is something that a financial professional is qualified and licensed to do.
The factors that may influence how one builds out their pension plan can vary, but some key retirement issues to consider could include:
Retirement readiness means having a keen understanding of all pension and retirement related factors before you dive into the retirement planning process. Additionally, understanding the various types of pensions available to potential retirees can help you align on the suitable pension fund for your requirements and needs. This is where we come in - and in the following blog, we will aim to explore the different pension options available to you, and how you can make the most informed choice when it comes to selecting your pension plan.
Before You Start Planning for a Pension
Workers are living longer and healthier lives, but knowing your timeline of employment and goals are critical. Driving a strategy that will allow you to live in retirement to the standard you would like is part of what you need to know before planning for a pension.
Will you spend your years traveling, do you want to settle down at home or do you want to tick those last items off your bucket list? Careful consideration of these things can help you decide how your pension approach will shape up.
Financial planning allows you to consistently measure your planned income and recognize where your future expenditures may lie. For this reason, a professional financial advisor can help you become more aware of what you can afford in retirement.
Earning more and saving more is a sound success principle for your financial future, and a qualified financial advisor can keep you on course. Consistent contributions to a pension don't have to be a huge portion of your income. They should be sustainable. In the following blog, we will look closer at the different types of pension options available to you and how we at FitzGerald Flynn can guide you on the right path to building retirement readiness.
Types of Pensions
It can be a challenging endeavor to yield the most out of your retirement savings and further understand the different pension options available to you, such as state pensions, personal pensions, workplace pensions, etc. However, in Ireland, the most common pension plan is a defined contribution scheme.
Employees are likely to be enrolled in their workplace pension schemes. This arrangement is often an example of a Defined Contribution pension (DC), a Defined Benefit pension (DB), or an executive pension plan.
The State Pension (Contributory)
Another common pension option is the State Pension. The Irish State Pension is not means tested - you can have other streams of income and still be eligible to receive it. If you have ever worked in Ireland and paid Pay Related Social Insurance (PRSI - Ireland’s social insurance system), then applying for the State Pension is a clever idea.
PRSI contributions, also referred to as ‘’Stamps’’, are automatically accrued for every year you work in Ireland. Every year you work and pay PRSI, you receive 52 stamps i.e. a stamp for every week of the year. To become eligible for the full state pension, you need to have collected 2080 stamps - a grand total of 40 years of employment in Ireland.
After said 40 years of contributions, workers qualify for the full state pension. Currently, that retirement age of eligibility is 66, with projections that the pension age should rise to 67 by 2031 and then to 68 by 2039, though this situation is fluid, with the Irish government continually reviewing it.
Occupational Pension Scheme
While they are under no legal obligation, an employer can provide what is known as an occupational pension scheme. These plans are also known as company pensions or employers' pension plans. Pension schemes like these may aid retirement readiness since they offer a regular income after retirement.
Executive Pension Scheme
An executive pension scheme is a specific pension plan designed for employers, company owners and directors. It is issued by a pension provider to an employer, but with the director or employee of the company being named as the trustee/beneficiary.
As a member of the pension scheme set up by your company, you draw the plan's tax benefits. The trustees act on behalf of members and ensure contributions are appropriately applied.
Personal pensions, also referred to as private pensions, are pensions that are organised by people who have their own business, are self-employed, or by those who are not covered by an occupational pension scheme. In Ireland, the most common options under the personal pension schemes upon retirement are to buy an annuity, or to invest in an Approved Retirement Fund (ARF).
Purchasing an annuity is in effect, buying a regular pension income with your retirement fund. One can purchase an annuity through an insurance company and in return, the insurance company will transfer a consistent income to you with agreed upon parameters. These parameters may vary, but would be defined by things such as health history, age, sex etc.
An ARF, meanwhile, is more of an investment vehicle and is thus subject to more risk. An ARF is not a consistently transferred source of income, but rather a significant lump sum that one can draw from as much as you want, to in effect, give yourself an income on your terms. An ARF can consist of both monetary and non-monetary assets, from stock options to property, and is thus not guaranteed.
Personal Retirement Savings Accounts (PRSAs)
Sometimes employees want a plan that moves with them. For example, if you need the portability of a retirement account that you can take with you when you change jobs, then a Personal Retirement Savings Account (PRSA) might be the best fit for you. A PRSA is an investment account, defined as a contract between you, the employee, and the PRSA provider.
If your employer has not provided the option of an occupational pension scheme, then by law they must provide a pathway to a standard PRSA, by entering into a contract with a PRSA provider. The employer is legally obligated to communicate with their employee about their rights to this PRSA. The employer must also ensure that the employee is given adequate leave to set up the PRSA.
The PRSA is designed to be agile for the employee, to ensure that they are making adequate pension contributions, regardless of the nature of their work and where that work takes place in Ireland. The key benefit of a PRSA is flexibility - an employee can change jobs, they can change PRSA’s, but the benefit remains the same - that they are consistently contributing to the security of their future.
There are 2 types of PRSA - standard and non-standard. A standard means that your PRSA is subject to government-imposed charge caps and that the type of investment you make is subject to regulation. Whereas a non-standard is the opposite - there are no caps on charges and investment decisions are not restricted.
Your contributions in a PRSA are wholly at your discretion. You can save on your terms at the frequency and in the amount that you choose i.e. the parameters are yours to set.
Each pension scheme has its own set of rules, but pension schemes are generally regulated by the Pensions Authority of Ireland. In addition, members of schemes have certain rights to information about their pensions, throughout the pension scheme process.
Why You Need a Pension
By Investing in a pension throughout your career, you enable yourself to get a jumpstart on planning for the future, rather than waiting at the last minute to get your affairs in order. As we have outlined above, there are a number of different options available to you to explore, depending on your financial and employment situation. Should you wish to get a head start on pension planning, we will always be on hand to provide expert and licensed advice and point you in the direction of the scheme that works best for you.
Matching contributions from an employer is like free money. This arrangement is part of a stable approach for your retirement years, and the growth on a pension is tax-free.
When you stop working, having a pot of money to supplement any state pension is a tremendous asset.
The Value of a Pension Advisor
A pension advisor helps to tailor a strategy for the ideal investments with the best funds and puts more knowledge and expertise behind your cash than you might have if you were to go it alone.
This approach to retirement is a serious one, as it means understanding a topic that may otherwise seem intimidating. A professional can help break down the concepts into manageable sections.
Advisors also consider your age, income, retirement lifestyle goals, fees associated with their consultation, and more. Affordability of the pension plan you choose and a robust income stream can be a lifesaver. Advisors also have strategies that match your risk tolerance.
Supplementing your state pension to ensure you have enough to live on means having your affairs sorted before you get to retirement age.
Finding a Pension Advisor for You
At FitzGerald Flynn, there are financial advisors, general insurers and pension providers equipped to handle your retirement needs. Having an effective strategy can help you with retirement readiness. In addition to other financial planning, your financial advisor should definitely have experience with pension planning, something that we here at FitzGerald Flynn pride ourselves on.
Finding out the kind of pension you require is one of the things that we can help you determine. Managing your retirement is also vital, so we can also offer our services to help you shape the choices you make around your plan.
Have a chat with one of our advisors to discuss your retirement goals and make the best choice for your future circumstances.
Being ready with relevant questions can help make the most of that experience. So contact us today - and let's start working towards a sustainable and future proof retirement plan.
Over the years we have gained some experience. Every month we like to share them with you. Check in with our blog.