Pensions for retirement planning
Most people will have various pension pots built up over their career. Sometimes it can be difficult to track down the various pots dues to changing jobs or moving house. If you are seeking to gather information, Ethico can help in three ways.
1. We can help you to locate and contact any previous pension providers where you think you may have benefits.
2. We can help you to know what questions to ask your current or previous pension provider.
3. We can help to build a plan to get the best value from the options available to you.
Pensions in Ireland are unfortunately over-complicated. Retirement planning can be very beneficial when done correctly, but there can be pitfalls. We strongly recommend that you get financial advice from a regulated expert prior to making any actual changes to your pension arrangements. Ethico are expert financial and retirement specialists and we are happy to help if you make contact.
You may simply be looking to gather some information at present - which is fine - but effective pension planning is pivotal to maximizing your lifestyle in retirement. It is important to remember that each pension benefit you have can have a positive or negative affect on each other depending on Revenue rules, your years of service, and how or when the pension was paid/built up. It is also critical that the sequence of drawdown and the post retirement options are explored on each policy. We appreciate that this can sound daunting, but it is an area that we are very comfortable and would be delighted to explain simply to you.
Here are some basic examples of the different types of pensions available to give an idea of the complexity:
PRSA (Personal Retirement Savings Account): usually for people with no access to a group pension scheme with their employer.
PSRA AVC (Additional Voluntary Contribution): often used by members of occupational pension schemes who wish to make additional contributions outside the boundaries of the main scheme. AVCs are popular with Public Sector employees.
Personal Pension: used by the self-employed or people in non-pensionable employment.
Executive Pension: Pensions that are partly or completely paid by the employer on behalf on their employee.
Occupational Pension: A workplace pension for employees, usually in larger organisations. They can be defined benefit and/or defined contribution.
Directors Pension: Similar to executive pensions however with more flexibility on contributions and retirement options.
Buy out bond: Used by employees who leave a company pension scheme and wish to "bring their pension with them". Note: they can usually choose to leave the funds in the old scheme if they wish.
ARFs & AMRFs (Approved Minimum Retirement Fund): A post-retirement option to warehouse your pension savings and to take a variable income from through retirement.
Annuities: Guaranteed Income for Life in retirement purchased with the pension savings were built up during your career.
So in simple terms, it's complicated. A good financial advisor will create a plan to suit your needs and recommend the right pension policy for you to keep you inside the rules and regulations.
Why do people do pensions?
A few simple points:
State pension will likely not be enough to live on for most people when they reach retirement age. Given the choice most people would like to have saved more to supplement their state benefits.
Tax relief is usually available on pension contributions. Limits and restrictions do apply, but 20% to 40% of the net cost of saving could be covered by getting tax relief. Pensions are one of the very few savings mechanisms with this incentive.
Long term growth can have a dramatic impact on your savings values if you make risk appropriate choices through your career. The €100 you save on your last day of work before retirement does not have any time to grow. The €100 you save on your first day could be worth €700, 30 years later. Compound interest over a long period of pension saving is a valuable concept to get comfortable with.
While pensions can be beneficial when set up and calibrated correctly, there are still many occasions where your Ethico advisors will advise you not to contribute to a pension. This may sound odd, but it is an important aspect to be aware of.
Holistic pension planning is our specialty at Ethico. We do not look at pension pots in isolation. We consider all of your pension pots, how they interact with each other, and how they interact with other income like the state pension, or rental income. We consider potential outcomes for you AND your family members from an income, tax liability, and inheritance point of view. Ultimately our goal is to jump into your shoes and advise you on the best way forward.
Our mantra is: Get good advice and get moving!
Once the correct pension pathway is chosen, your Ethico advisor can advise you on how to invest your pension savings ethically, in line with your environmental, social, and governance requirements. We believe that traditional investing is no longer fit for purpose and that sustainable investing is the logical solution for long term investors.