Thus started a very interesting article by Charlie Weston in the Irish Independent earlier this week. A heading that caught my eye as it’s an often quoted phrase ie. “A young persons game” but not often used in terms of pensions.
The article went on to articulate the fact that pensions really should be a young persons game and this I would thoroughly agree with. Interestingly, according to a recent survey carried out by iReach for Standard Life Investments, there has been a strong rise in pension ownership among those between the ages of 25 to 34. Some 46% of this age group has a private pension in place, the survey found.
This uplift in the number of young people taking out a pension comes after the head of the Pensions Authority, David Begg (which we discussed in a previous article on this blog titled “You can be young without money but you can’t be old without it”) warned that millenials will have not enough to live on when they retire.
This is heartening as there are many reasons young people, should strive to put a pension plan in place from an early age.
These include the following important factors;
- We are all going to live longer. Due to medical advances we are expected to live longer and hence our retirement years will be longer than they once would have been
- The State Pension is changing on many levels. Firstly the age on which one is entitled to the State Pension has changed; for anyone born after January 1st, 1961, the State pension only starts at the age of 68. For those born from January 1955 and December 31st, 1960, it starts at age 67. Secondly while the basic entitlement to the contributory pension (paid by pay related social insurance) was €12,000. However the Government have indicated that this may be changing and this might not be the case going forward in which case we might have a scenario where we may not qualify for the full €12,000.
- Whilst Employers previously once offered attractive Defined Benefit Pensions (where on retirement, the pension would be a set percentage of salary), if a pension is offered today, it will be a Defined Contribution arrangement whereby the final pension will be dependant on the contributions made and investment return achieved.
The changing landscape means it is more important than ever to seriously consider pension savings and as young as we can realistically afford it.
Pensions offer very attractive tax savings benefits.
Simply put, pension tax relief makes it more attractive to save for your retirement by giving you generous tax breaks on the money you invest in your pension. Essentially, your tax relief is provided in three phases;
- Tax relief on contributions
- Tax relief on investment return
- Tax free lump sum at retirement
As a higher rate tax payer if you contribute €100 to your pension, due to tax relief available of 41%, it costs you only €59.
All Self employed persons and Proprietary Directors will be looking at this with their Accountants this month, in the run up the October 31st Tax Year End.
If you have any queries in relation to any aspect of pension planning, please contact us at 053 9233640.
This is an opinion only and does not constitute advice as individual circumstances will determine all financial advice given.