This week, DD’s Finance columnist Shona Chambers from John McColgan Financial Services explains how there is crucial you don’t make contributions or choose pension investments blindly!
In response to the Mind the Gap study, carried out by consultancy firm Deloitte for Aviva Insurance, I’ve seen headlines like ‘Sickening news for anyone retiring in Ireland over the next 40 years’, ‘Future retirees told to save extra €1,100 a month’, and ‘Irish workers need to save over €1,000 a month more, states pension report’ crop up on online news sources.
It is disconcerting to read headlines like this, and some might even call it scaremongering. However, these headlines can be a good thing if they stimulate conversation and get people thinking about their financial future.
Many of us equate saving more for retirement with denying ourselves the things we want now — and the prospect of buying a new car or going on a foreign holiday will always look more attractive than making pension contributions. But think about it this way — how would you like to pay less tax? In fact, tax relief is one of the biggest attractions for most people when it comes to saving for retirement!
Employees also make contributions to employer-sponsored pensions schemes because their company will match their contributions. A good way to think of this is that it’s free money! And who wouldn’t want to turn down free money?
It’s good that people are making some kind of pension contribution. It goes without saying that any kind of contribution is better than none at all. At least there will be something in the pot at retirement.
The big BUT is that few people understand how much income their pension contributions will give them in retirement, and nor do they understand how much they will need. In fact, many are making contributions blindly with no advice going on behind the scences. And these are the people with pension plans!
There is a whole other group of people in Donegal with no pensions at all. Recent research by Friends First showed that 36% of households in the North-West have no private pensions, meaning that those people will be entirely dependent on the state pension when they retire. The current rate for the contributory state pension for a single person is just €233 per week.
Ask yourself this question: could you live and pay all your bills if you had to rely solely on the state pension? Clearly, a lot of people will face a sudden sharp drop in their incomes, or they will be forced to work well into their 60s and even 70s to meet their expenses. It’s no surprise then that the same Friends First research found that 84% of people without a private pension fear that they will not have enough income to support them in retirement.
Naturally, affordability is a huge factor when it comes to saving for retirement. Some pension contributions are certainly better than none. The key is to meet with an independent financial advisor and understand how much income your current pension will equate to in retirement. Don’t make contributions or choose pension investments blindly!
Do you know how much your pension will give you in retirement? If not, get in touch and we can help you make a plan that will suit your needs.
Shona Chambers QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor with John McColgan Financial Services. You can contact Shona on 074 9124366 to make an appointment.