Why save for retirement?
Saving for retirement is important. People are living longer and leading more active lives in retirement. As a result it is more important than ever for you to think about where your income will come from when you retire. Pension saving is one of the few areas where you can still get tax relief. About half of the people working in Ireland are members of pension arrangements.
The importance of pensions
As people grow older, they expect that eventually they will be able to retire. For some people the State pension is enough to provide a basic level of income. Others may be able to build wealth through their businesses or other assets, without relying on pension plans.
But most people will want to supplement what they have with some form of pension scheme. Many employers take the view that while their employees are working,they should be building up an entitlement to a pension when they retire.
Pension arrangements have many advantages:
- When people come to retire they will experience a reduction in income – a pension makes up for some of this loss of income in retirement;
- Pension schemes can provide protection in the form of lump sums and pensions to dependants in the event of a member’s death;
- In order to encourage pension schemes, the State provides tax relief on contributions made to pension schemes and the growth in their investments.
Planning for Retirement
It is important for you to take control of your retirement planning and make decisions regarding your pension. It is often not appreciated that contributing to a pension arrangement can help you build up an extremely valuable asset. The State pension is intended to ensure that everyone receives a basic standard of living in retirement. For example the full State Pension (Contributory) currently is €248.30 per week or approximately €12,912 per year.
When planning for retirement you will need to decide whether this is enough to live on in retirement, and if not, where your additional retirement income will come from.
Few people realise that providing the required level of income in retirement requires a substantial level of pension savings.
Adequacy of income at retirement – Are you earning enough?
In order to plan for retirement you will need to consider where your income will come from in retirement and what level of income you will need. It is important to note that many people have unrealistic expectations as to the level of pension they will receive in retirement.
If you already have a pension arrangement, you can find out the likely level of pension you may receive by asking the pension contact; in the case of an occupational scheme you should ask the trustees or administrator for a statement, in the case of a personal pension or PRSA you should ask your life assurance company or PRSA provider.
Particular issues for women to consider
Although men and women are treated equally in relation to pension provision, there are a number of areas such as maternity leave, part-time working and breaks in employment that are of particular interest to women. Some women are homemakers and rely on benefits available from their spouse/civil partner’s pension scheme. Also, women generally live longer than men and so are more likely to need their pension to last longer.
These factors mean that women can be more vulnerable in relation to retirement.
Women may receive pension income in their own right, from a number of sources in retirement – State pensions, occupational pensions, personal pensions and Personal Retirement Savings Accounts.
Your spouse/civil partner may have income from any of the above sources. In addition, your spouse/civil partner’s pension arrangements may provide an income for you and your dependants in the event of their death or they may not. If you are not sure what benefits you would be entitled to, you should check.
Potentially your income could come from the State pension, your occupational pension scheme, if you are in such a plan, a personal pension or Personal Retirement Savings Account if you have them, and any other non-pension based sources of income you may have.
Your options will depend on your work situation. If you are an employee you may be able to join a pension scheme sponsored by your employer. Employees in the public sector can join their public sector pension scheme. The self-employed can take out a personal pension. Personal Retirement Savings Accounts are open to virtually anyone – employed, self-employed or those currently not working – to save for retirement.
How to choose which pension option is best?
The best option for you depends on your personal circumstances and work situation. For more information and advice on the options that best suits your circumstances, contact us today by email at firstname.lastname@example.org or phone 057- 9335955