Pension Funds

We are all aware of the need to put money aside for our pension funds however it is often difficult to manage your current cash flow needs with our long term needs. Combine this with the introduction of the new Government levies, proposed reduction in tax reliefs and poor performance, the net result is that more and more people are coming up with excuses not to contribute in to their pension funds. This is a worrying trend and so it is therefore important to examine the facts of the matter when it comes to you pension funds and its importance in your overall financial planning.
A lot of people are unaware of how little the State pension funds actually provide you with in retirement. If we look at a single individual earning €60,000 pre-retirement who is planning to live off the State pension in retirement, they would see a drop of 80% in their income! How could you cope with such a dramatic drop in your income levels?

We must also examine whether the State will even be able to provide benefits at the current level when you come to retire. At present there are 6 people in employment to support every one person receiving the state pension.
However by 2050 it is projected that this figure will drop to only 2 people supporting each person receiving the State pension. You can immediately see that this situation is not sustainable and changes to the State Pension Funds will have to be made before then. We don’t know what these changes may be but it is unlikely that they are going to be positive for future pensioners. The importance of providing for your own retirement is therefore brought in to sharp focus to protect you against future negative changes.
The Good News!
Tax Relief:
At present the tax relief has remained unchanged and you therefore need to take advantage of this while you still can. If you pay tax at the marginal rate; every €100 invested in your pension only costs you €59. This still represents a very good deal and were it to be offered by any other investment you can be sure we would all be enticed!
Every little helps:
By making a concerted effort now to start/ restart your pension funding, it may have a dramatic effect on your pension in retirement. Recent figures released from Aviva suggest over a 30 year period that for every €1 a month that you contribute today may result in an in additional €3 in retirement income. You can see that even small amounts can have a dramatic effect in retirement. Often, through the engagement of a Qualified Financial Adviser you can find costs savings in other areas of your finances which can be then utilised to help fund your pension.

Markets can’t underperform forever:
Going through an economic downturn, it is often difficult to visualise a brighter future however history has taught us that economies go through cycles of boom and bust and while markets have been going through an extremely volatile period over the last few years this can’t go on forever. As pension funding is a long term plan, you have the ability to ride through these cycles and will hopefully provide a positive return. In fact, many would argue that markets are at a low ebb and therefore starting pension funding now may be a good time to gain from markets when they do eventually turn.
The world of pension funds can often be complicated and daunting which can lead to peoples reluctance to engage in the planning of their retirement. The problem is that burying your head in the sand can lead to far worse problems and unwanted surprises in retirement. The fact is that pension planning and pension funds is a necessity and the sooner you engage the better protected that you will be in retirement.