Generous tax reliefs add to strong pensions logic

SPONSORED: Take your inspiration from the lockdown DIY craze, take control of your pension plan, says Bernard Walsh, Bank of Ireland

With pensions, as every other major financial decision, one key priority question to answer is 'What is important for me and my family?'

Some might question our sanity talking about pensions at this time – we are in the midst of a massive global healthcare crisis which has brought with it a deep recession. 

With that, we have global uncertainty with concerns about trade wars, Brexit and a fractious US presidential election campaign. There is no doubt that many people are worried about the immediate here and now – how can they pay bills, put food on the table and keep a pay cheque coming in the door.

With so much to contend with, it is easy to forget that we had a General Election in this country in February. You might recall that one of the issues that was to the fore was pensions. It was the first occasion in a long time that pensions captured so much airtime. Bank of Ireland recently carried out research with Red C that points to a very real increase in individuals’ concern about their financial future. What we are hearing is that people recognise that they have a very real imperative to take steps if they want to have a decent income in retirement.

Ireland has been facing a Pensions Time bomb for some years and this will place a huge burden on the State if it is to maintain the State Pension at its current levels. 

As important is the question of how the Government will handle the thorny issue of the age at which people will qualify for it? If you are working and have some pension arrangements in place, are you going to be in the position that you might retire at 65 but your State pension won’t start until you are 68?

Lockdown inspires DIY explosion

I think that we all probably handled the lockdown in different ways whether your DIY skills came to the fore or you walked your legs to the bone. 

I loved the sign I saw in the window of a barbers with an addition to the quote from Eleanor Roosevelt – “you must do the thing you cannot” – except cut your own hair! 

What we did have was a lot more time at home and a lot more time to think. For some of us, lockdown might have given us a flavour of what the future might hold. We had the time to really wake up and smell the coffee and look at our lives in a different way. 

What is important for me and my family? For those who work from home, you got a very real sense of what work – life balance really means and what are your priorities. We know that we live in a World that has never been so uncertain but if we are to have priorities and goals, then we need a plan to achieve the. We can just sleepwalk into a future that someone else dictates for us or we can choose to take control and define our own plans.

What all of this tells us is that we will have to rely less on the State to take care of us which means taking some steps ourselves. The good news is that the State really helps us on this journey with generous tax reliefs to incentivise you to make contributions towards your retirement. Those tax reliefs may come under pressure in the future as Government finances are strained. While they are available, it is worth taking full advantage of them.

Bernard Walsh, head of pensions and investments, Bank of Ireland Investment Markets.

With that support as a start, you can define your retirement objectives. Study after study tells us that those who achieve most begin with a simple step – write down your goals. Then write down what you have – can you gather together all of those files and letters and translate them into a clear picture of what is your starting position.

Having articulated where you are and where you want to get to, the final stage is to work out a plan that is right for you. There are many moving parts in a plan, from how much you can afford to contribute to how you want your pension pot invested.

 A key consideration is how to optimise what you have, as opposed to maximise what you have. To maximise, you look for the highest possible return. Optimising is different – it is about achieving the best outcome within the level of risk that you are comfortable with.

There were plenty of lessons for pension savers already in 2020. As the COVID crisis spread from East to West, stock markets fell sharply and then many of them recovered as quickly. 

Bond markets fells but by far less than shares and with Central Bank impetus, they have delivered healthy returns. We saw a noticeable disparity in returns from markets with US shares broadly level year to date and UK and European shares lagging. What might surprise many is that the Chinese stock market has delivered bumper gains so far this year. 

For those that continued to save and remained invested, they should have seen a solid rebound in their fund values and may have bought some good quality assets at very attractive levels when the markets sold off.

If ever we needed reminding, the cardinal rules of saving for retirement remain unchanged. Make sure that your money is invested in a well-diversified manner and that you are not overly exposed to one asset r market. Time is the most important ingredient in the investment mix. Start as early as you can, save what you can afford and allow time to do its job.

When you know what you have and you know where you are going, spend time and get advice on how best to get there. Don’t be de-railed by short-term noise, fad or fashion. Make your plan as individual as you are and stick to it.

personalbanking.bankofireland.com/campaigns/pensions