Jill Kerby

SELF-EMPLOYED?  NEED A PENSION?  DO IT YOURSELF

If I could jump back in time, Star Trek-like, to 1987 when I first became self-employed and began paying some proper attention to my personal finances – an event entirely due to the insistence of my excellent accountant (who is still my excellent accountant) – the one thing I would approach differently is my pension. 

Back then, just barely out of my 20s, I was rather alarmed when this mere slip of a girl herself (as she was then too) said she wouldn’t take me on as a client unless I took out a pension.  “I don’t earn enough to save for a pension.  I am too young for a pension,” I pleaded.  “Yes you do, and no, you are not,” was her stern reply. 

She was dead right of course and I am hugely grateful that she put me on the road to long(ish) term financial freedom by insisting that I start a pension fund and then put the maximum amount allowable for tax purposes into it each year.  

She also forced me to face the hard truths of self-employment early on:  there is no fairy godfather or godmother employer to make pension contributions on your behalf. If I wanted to retire some day on more than what the government might deign to pay me at age 65, I was going to have to make my own financial arrangements. 

My first pension, into which I contributed only about the cost of a daily Café Sol cappuccino, but was the equivalent of about 10% of my earnings, is actually worth an awful lot more than I put into it, as one would expect after 22 years.  But still, it was a bog-standard managed fund that was pretty much sold to everyone, regardless of age, income or risk profile and which carried far too high an exposure to Irish equities – a mistake that is being paid for now. 

Luckily, I’ve added another 10 different funds and a few more fund managers to my collection of pension plans – diversifying the assets and the managers in the hope that if and when the markets crashed (as they did in 1987, 1991, 2001 and 2007-8) or the managers’ luck ran out (and it always does eventually) my grand plan for an ‘early’ retirement at 60 would still stay on course. 

So much for the grand plan.  Over the last year every known asset collapsed in tandem (except perhaps gold.)  Diverse as my pension assets have been, which includes not having overloaded on property, my pension strategy still needs some serious revising. 

I’m planning on switching to a self-administered, non-standard PRSA into which an even more diverse, lower cost selection of assets and funds can be put that will include a greater volume of bonds and cash as well as energy and alternative energy shares, emerging markets, gold (as an inflation and currency hedge) and other commodities, bio-tech and pharmaceutical shares.   

There will be a place, of course, for more conventional consumer-based equities, especially world dominating companies that have mostly maintained their markets and dividends.  But since I have less time than I did when I was 30, and I don’t think there will be much growth in western economies overwhelmed by personal debt I will be lightening up on consumer-driven assets. 

In hindsight, a lower cost, super-diversified, age and risk appropriate investment route is the one I should have taken from the start. That said, back in the late 1980s and early ‘90s, the typical pension contributor had no access to an umbrella product like a self-administered PRSA nor were charges and fees at all transparent and only the very rich had any access to decent investment advice. 

Fortunately, the advent of new technology and the internet has changed all that. 

There are only a couple of weeks left before the October 31st pay and file Revenue deadline (November 13 if you file on line) for topping up last year’s pension fund in order to claim maximum tax relief. The tax shouldn’t be the main reason for a pension investment, but if the new Greens/Fianna Fail Programme for Government holds, this will be the last year you’ll get that relief at your top rate of tax and PRSI.

Cutting the tax relief to just 30%, when higher earners are likely to be paying well over 50% on retirement income in the coming years doesn’t make much sense, but that’s next year’s headache.  The job at hand now is to work out how much you think you will need – or want – to live on in retirement and build a parcel of assets and funds around that goal.  

A well-chosen broad selection of risk-weighted assets in a self-administered pension scheme just might be the way – given enough time – to get there.