Self-employed could face pension shortfall

SELF-EMPLOYED people could be down a massive €420,000 at retirement depending on their choice of pension fund manager.

A shock new study shows huge divergence between funds over a 25-year period.

According to the research, the difference between a happy retirement and one of penury could well be determined by the choice of fund manager.

The study’s author, Kevin Thompson of McAvoy & Associates, Cork said: “What we found is nothing short of astonishing.”

In one category of pension fund, an investment of €10,000 a year over of 25 years meant a difference between the best and worst performing fund of more than €420,000, he said.

“That’s a lot of money to lose for failing to compare one fund’s performance with its competitors and taking appropriate action.”

Like many before him Mr Thompson stresses the need for those relying on personal pensions to keep a very close eye on how the fund performs relative to others.

That was an imperative for anyone serious about ensuring their ability to live at the level of comfort they want when they quit working, he said.

The divergence in the pension fund market highlights how important it is for people to do their homework and to keep a very close eye on the market and the various players in that market, said Mr Thompson.

This time of year is traditionally known as ‘Pension Season’ and is the busiest time of the year for the sector.

Given we are coming towards the end of the tax year for the self-employed, and by making a pension contribution prior to these filing dates, taxpayers can reduce their tax bill, he said.

But before jumping into the pension fund arena Mr Thompson advises five key steps be taken as part of a financial health check:

1) Get to know what you already own - your financial adviser can assist with that

2) Know whether you are on target to meet your required amount at retirement - some people may already have enough in assets and may not need any further investment

3) Check the investment performance of any fund recommended - note the €420,000 difference between he best and the worst

4) Understand the charges - investment is long-term and even seemingly small levels of cost can have a serious impact on returns

5) Explore the alternatives to buying a pension.

Expanding on that point Mr Thompson said a combination of a good stockbroker and a self managed pension might offer more potential to those looking to secure their retirement.

Property is increasingly being seen as an alternative to equities, provided it is “well chosen” and not just following the crowd, Mr Thompson said.