Making Cents: It's never too early to start providing for your pension

Young people in Ireland in 2021 face a wide array of financial challenges in their lives, from precarious employment to high rents, from stagnant wages to the difficulty of buying a home.

So it is small wonder that planning for retirement isn’t at the forefront of their minds.

CSO figures show that while two thirds of workers between the ages of 20 and 69 years have supplementary pension cover, it varies widely across age groups and sectors. Cover ranges from almost 100% in the public service to much lower numbers in the private sector, where only 34% of those working in sales and customer service have any supplementary pension. Coverage is below 50% for workers aged 25 -34 and less than 25% for those aged 20-24.

“A lot of young people don’t think about retirement at all — it’s in the far distant future,” Paul Kenny, course leader with the Retirement Planning Council of Ireland (RPC) and former Pensions Ombudsman, acknowledges.

But the RPC is advising young people to start thinking about their retirement sooner rather than later, and say financial planning is more important now than ever before.

“The State pension is currently payable at age 66, and Government intended to extend the age of payment to age 67 from 2021 and age 68 from 2028,” Mr Kenny points out. “While that is on hold for now, the age of payment is bound to rise in the future to reflect longer life expectancy, so it is quite possible that it may be even later than 68 by the time people in their 20s and 30s reach retirement.

“While they have other things to think about, they will reap the benefits down the line by making regular contributions to a pension from an early stage in their careers.”

If you are new to pension planning, the RPC suggests the pension calculator on the Pensions Authority website as a good starting point. This takes age, salary, projected age of retirement, and target pension as a percentage of salary into consideration. The calculator also allows users analyse their existing pension scheme and understand the contributions from the employer and employee.

“The pension calculator analyses a range of information and acts as a useful guideline in determining whether a pension scheme is likely to reach the target or if there is likely to be a surplus or a shortfall,” Mr Kenny says. “If there is a shortfall, it tells you what extra you will need to pay in order to reach your target.”

After completing some online research, the RPC suggests young people should consider seeking advice from a financial broker or adviser to get some professional guidance.

Of employees with no supplementary pension cover in the CSO figures, 35.3% cited affordability as one of the main reasons. When deciding how much you can afford to pay, remember workers are entitled to tax relief on pension contributions, which means you pay less tax on the money you earn that goes into your pension. The amount of the tax relief you get depends on your age and, while the older you are the higher the relief, people under 30 can claim up to 15% of their earnings. This rises to 20% for those aged 30-39.

Starting a pension early also means you make full use of compound interest; even small contributions early on can be worth more than bigger payments later. Even if the amount you can afford to pay in now seems small, it could make a big difference in your later life.

If you are a few years into your working life, the RPC also recommends meeting with a financial planner or attending a mid-career planning course.

“Young people should explore their options with a financial planner in their 20s and 30s and consider mid-career planning options,” he says.

“Many people start thinking about their finances when they attend a pre-retirement course, shortly before they retire.

“Mid-career financial planning allows people to make any changes that appear desirable while there is still time to make a difference.”

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