Money Times - October 27, 2014

Posted by Jill Kerby on October 27 2014 @ 09:00




You’ve no doubt seen the television ad or heard the radio version:  The silver haired 60-something looks into the mirror and sees their youthful, vigourous 30-something self.

They remind their younger version about the expensive clothes, cars and exercise equipment that they once bought, and how those might not have been the best value purchases they could have made.  On the other hand, that pension fund they started 30 years earlier, well, it worked out just fine…

If only real life retirement planning was that easy.

October 31st is the self-assessment deadline for making contributions into a pension fund in order to reduce your 2013 tax liability and benefit from either 20% or 41% tax relief.

But not everyone who bought a private pension plan in the past has had a good experience and they may be reluctant to make the top-up this year.  This is probably because…

-       they purchased their pension at a time when fees, charges and broker commissions (unknown to them) soaked up the first couple of years’ worth of contributions;

-       they never contributed enough into the plan, despite even better marginal tax relief than today;

-       the pension fund assets were not always suitable to their needs, were never reviewed or rebalanced as they got older;

-       they panicked when markets fell (as in 2008-9), stopped making contributions  and/or froze their pension fund, thus crystallising their losses;

-       they know someone who made the wrong post-retirement choice, perhaps locking into poor value annuities or into buy-out-bonds or ARF/AMRF’s without fully understanding all the complex implications;

-       have been discouraged by the pension levy confiscation since 2011.

While fees, charges and commissions do still exist, they are lower and more transparent. More people are now dealing with fee-based advisers, who strip out commission, but if not, they demand a written comparison of the potential impact of the commission on their investment fund in the short, medium and long term.



Pension returns have been strong over the last few years (recovering and exceeding the 2008-9 losses for those who didn’t panic) but the bull market may have come to an end say many commentators.

Getting urgent, impartial advice if you are starting a pension or a review of an existing one is recommended.

I will be meeting with my pension adviser on October 31 – filing online means my tax and file deadline is November 14 – to review my pension, with wealth preservation my priority, then the tax relief. (My adviser offers twice yearly reviews to older clients.)

Complex as pensions are – and there is no getting around that – best practice hasn’t changed, and the number one rule is to start saving and investing as soon as possible.

Delaying a pension until your 30s – and the Zurich ad, in my opinion is wrong to use a 30 year old in that mirror - makes no sense anymore given how unlikely it is that the state contributory PRSI pension will be enough to live on, entirely or in part by the time a 30 year old retires in the late 2040s when pensioners are projected to exceed active workers by over half a million!)


So what action should a young person take as a first pension step (or to maximise their tax relief for 2013) before the end of this month? 

-       First, join your company pension or group PRSA – by law your employer must offer the latter if they don’t operate the former.

-       Next, start paying in at least 10% of your gross salary and keep it at that percentage as your wages rise.  By making automatic monthly deductions from salary your lifestyle costs, which might some day include a mortgage, child-care costs, etc can be more easily absorbed.

-       Make sure you understand the assets in your pension: the younger you are, the more risk you can take in the guise of a well-diversified selection of global stocks and shares.

-       As you approach retirement you should consider lowering your exposure to riskier assets like stocks and shares and increase your fixed asset funds, like deposits, short-term bonds, property and even precious metals.

Time is running out to not just claim 20% or 41% tax relief on your pension contributions by the October 31 (or November 14) deadline but also perhaps in taking steps to safeguard the pension gains of the last few years.

No one can accurately predict market performance but corrections happen and many cautious commentators believe we might be at the early start of another one.

Review your pension now with an experience adviser.

Staring at yourself in the mirror and doing nothing, will certainly not produce a happy retirement outcome. 



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  • Jill Kerby is one of Ireland’s best known personal finance journalists 

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