Money Times - Januray 17, 2017

Posted by Jill Kerby on January 17 2017 @ 09:00



Every January Irish Life, the state’s largest purveyor of life insurance, investment fund and especially pensions, outside of the state itself, produces an annual report, which it shares with the financial media.

For the company itself, last year was a good year. Investment returns in 2016 were positive with global equities up 10% on average and average eurozone government bond returns up nearly 5%. Irish property funds returned c11% and their popular, diversified MAPS fund of mixed assets was up a respectable 7.7%. 

The company, owned now by Canada’s largest insurer, Great-West LifeCo, also bought out Aviva Health and the remaining interest in GloHealth in 2016. It sensibly kept GloHealth chief executive Jim Dowdall to run the new health provider, now called Irish Life Health who reminded everyone that in 10 years another 42% of public hospital beds will be needed just to keep up with the extra over-65s.

Irish Life is the only company now that provides customers with a menu of essential financial products: life insurance, investment funds, pensions and health insurance.

And while I firmly believe that the best way to furnish yourself with all these products is to carefully investigate the wider marketplace yourself, or, ideally use impartial, independent fee-based advisers to help you, this simply doesn’t happen for the majority of people.

Outside of the public sector, fewer than half the working population have a pension fund and will rely on the state pension for regular retirement income.Ditto for life insurance among working adults with dependents. Those who do have private pensions are failing to invest enough into them.

Health insurance has a higher take up rate because only because the c€15 billion collected from compulsory taxation for the HSE is so badly managed.

But is was Irish Life’s survey of pension provision in 2016 that showed just how under-prepared this country is for the surge of older people – Ireland’s baby boomer generation – that are now joining the ranks of the retired in ever greater numbers:

-       In 2016 the average age at which individual Irish Life customers first purchased a pension was 44 years, almost 10 years older than the average age in 2000. The investment outcome for those ten lost years is devastating and amounts to tens of thousands of euro less in the retirement fund.

-       Only three in 10 (28%) of those not yet retired have a financial plan to help them prepare for retirement.

-       Only half of those under 50 have ever discussed financial retirement plans with their partner. This increases to 75% for those with 10 or less years to retirement.

-       A majority of respondents said they would like at least 53% of their current income on which to retire (excluding the state pension.) They ‘expect’ to have 44% of current income.

-       Irish Life now recommends a realistic pension income target of 1/3 of final salary PLUS the state pension “yet… 90% of people currently on our Defined Contribution plans are not on track.” Instead, most will see a salary replacement of just 18% plus the state pension.

-       Two thirds of retirees (64%) surveyed said they reduced their spending in retirement; 63% of them in hindsight, would have changed the way they prepared for retirement.

-       A positive result is that 69% of adults support automatic pension enrolment at work. A separate initiative Irish Life conducted in 2016 with a client company willing to adopt auto enrolment resulted in pension participation rising to 90% from 58% and maximum contributions rising from 42% to 82%.

The most urgent message from the survey is the one about retirement income expectations.

Even assuming current income is say, €50,000, 53% in retirement will be €26,500. The current state pension is €12,391.60. A c€39,000 income would be very welcome indeed.

But to achieve a pension income of €26,500 in the form of a guaranteed annuity you require a pension fund worth at least €500,000 for a single person with no dependents and over €800,000 if you were funding for a dependent spouse, for example.  Average pension funds are in the region of €100,000 at retirement.

With average income funding of just 18%, the worker earning €50,000 would end up with a pension of €9,000 a year. No wonder most of the working population expects to depend on the state pension, which in this case would help provide total income of €21,391 a year.

It’s a brand new year.

It’s not too late to do something about retirement planning and funding. In finding better returns on savings that are currently returning nil to zero interest or in protecting dependents and your family’s health care costs. Call a good adviser.  Failing that, at least check out the Irish Life website or other life company sites. 

The alternative – doing nothing – gets scarier with every one of these annual briefings.   jill@jillkerby.ie


(The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)




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