On International Women’s Day – Women and Pensions: What you should know
On International Women’s Day it’s important for everyone to have a plan in place so that their standard of living doesn’t fall when they retire. While women generally live longer than men, they are less likely to have adequate income in retirement.
One of the reasons for this is because women often face challenges during their working lives not experienced by men. They may take temporary or permanent leave to mind children or to take care of loved ones. If you take time away from work, this can have a significant impact on your savings and ultimately on the type of lifestyle you will be able to afford in retirement.
5 Things to Consider …………….
- State Pension – Will you have enough contributions to qualify for the full State Pension (Contributory) when you retire?
- Existing Pension – If you have a pension from a previous employer do you know how much it is worth?
- Partners Pension -If you are married or have a civil partner do you know how much income their pension will provide in retirement?
- Returning to Work – If you are returning to work, will you be eligible to join your employer’s pension?
- Retiring – If you are approaching retirement, do you know how much income you pension is likely to provide you with in retirement?
A Financial Advisor can review where you are today, and work with you to develop a plan designed to meet your future needs and goals, whatever your career path to date.
Current Volatility in Markets
In our January update, we made the following comment about the 2018 outlook.
‘…….we would expect bouts of volatility in financial markets to be a feature this year. And we certainly cannot rule out a major correction……’
The volatility has shown up maybe a little earlier than we might have anticipated, but it certainly made its presence felt over recent weeks, with the major markets experiencing falls of between 2-5% over a few days. Our general advice to clients is unchanged in light of these developments and our view is encapsulated in the following simple points.
- Investors should expect repeated bouts of volatility over the coming months.
- Although it has been largely absent in recent times, volatility is to be expected in equity markets over the long term.
- History has repeatedly taught us that, for long term investors with diversified portfolios, the most appropriate response to volatility is to ignore it.
- Unless you can see a need for cash within the next three years or so, selling is the wrong decision.
- In fact if there is a significant correction, it will probably make sense to buy at that time.
Harvest launched its Cash Alternative Strategy in 2017 in order to provide clients with a low risk option for their longer term cash holdings. With deposit interest rates hovering just above zero, cash was simply not going to deliver the level of longer term growth required for client pension and approved retirement funds. The strategy comprised an equal weighting of three international investment funds all of which offered the following three key characteristics (i) a track record of low volatility (ii) consistent annual income of 3-4% (iii) daily liquidity.
The recent bout of market volatility has been the first real test of the strategy in terms of how it might perform against a backdrop of falling equity markets.The point to remember is that this is a ‘low’ volatility strategy and not a ‘no’ volatility strategy, so we would not expect it to be completely immune from short term market movements.
Since the start of the year equity market weakness has ranged from -1% (US market in euro terms) to -6% (UK). In comparison, the Harvest Cash Alternative Strategy is down by 0.8% over the first two months of 2018. So we are happy, based on this evidence, that the strategy is doing what it says on the tin. Going forward, we can however, be certain about a couple of points, firstly there will be more volatility over the course of this year and secondly, this strategy, while it does not offer a full protection against such volatility, we would expect it to perform relatively well in these circumstances.
As always, you should only consider the investment views contained in this update in the context of your own attitude to risk and how such choices might impact your Asset Allocation model. Should you have any queries in relation to your investment, please contact your Harvest Financial Services’ Client Manager or call us on 01 2375500.
Terry Devitt -Investment Director
Harvest Financial Services are delighted to be shortlisted for this years LPI Awards in the following categories.
LIFE & PENSIONS BROKER OF THE YEAR
INVESTMENT BROKER OF THE YEAR
This year saw a large jump in nominations to the awards. Submissions came from all over the country, from organisations of all sizes.
The nominations give recognition to LIFE, PENSION and INVESTMENT FINANCIAL BROKERS who have proved their excellence, professionalism and dedication in maintaining high standards in the Irish market.
The winners will be announced at the 5th Annual LPI Broker Awards in the Round Room, Mansion House on Thursday 22nd March.
Award Winning Advice
Property Investment using your Pension – Are Higher Returns on Direct Property Ownership More Apparent than Real?
Internationally, property is usually classified as an alternative asset class i.e. alternative to the mainstream asset classes which generally include equities, bonds and cash. However, interest in property as an investment is well above the norm in Ireland to the extent that it is viewed as a core asset class by many investors.
Property can be sub divided into commercial property (offices, shops etc) and residential property.
Commercial property is largely beyond the reach of individual pensions because of the large lot sizes involved but pension investors do have plenty of choice in gaining indirect exposure. For Irish commercial, options include unlisted funds such as IPUT, SSGA Windwise and the various insurance company funds and stock market listed entities such as Hibernia REIT and Green REIT. While all of these options are comparable, there are material differences between them in terms of costs, liquidity, underlying exposures and distribution policies. As a result, it is strongly recommended that investors receive professional advice before deciding which option best suits them.
For many individual pension investors, residential property has significant attractions. This has become heightened with the recovery in the residential market in Ireland over recent years. While the option of buying direct property into your pension fund may appear attractive, it does bring with it many significant drawbacks (see below). The alternative is to acquire indirect exposure to Irish residential property by way of listed vehicles such as IRES REIT, Cairn Homes and Glenveagh or unlisted structures such as Landholm. Again, there are material differences between each of these options and professional advice is an essential input in helping to decide on the most suitable vehicle.
Apart from the feeling of owning real bricks and mortar and lower costs (commonly more apparent than real), direct purchase of property by a pension fund brings the following disadvantages which should be seriously considered before opting for this route.
- Portfolio Risk
Having a major part of your pension fund tied up in a single asset is a very high risk strategy and flies in the face of good portfolio management.
- Management Challenges
Property ownership invariably brings management headaches whether they are management charges, tenant issues, property maintenance, repairs, void periods etc. all of which carry a real cost.
- Low Net Yield
A common complaint one hears from property owners is that while they are receiving a good headline rent much of it is being eaten up by running costs to the extent that their net yield from the property is disappointingly low.
- Poor Liquidity
Property is a highly illiquid asset and it can take a significant length of time to convert a property into cash. This is especially true during a period of market weakness.
Take the example of two pension investors who wanted to invest in property in 2012. One invested directly in an apartment in Dublin 3; the second invested in IPUT (Irish Property Unit Trust).
Direct vs. Fund Purchase 2012-2017
This simple example shows that the return on a property fund can be greater than on a direct property purchase once the costs associated with the direct property are factored in.
Property is an illiquid asset and investors should only consider this asset class for medium or long term investments. If you are considering a property investment through your pension it is important to seek professional advice to look at the different options available to you to maximise your returns.
Interest rates are expected to remain low in the Euro zone for the foreseeable future. Many investors still need to generate an annual income from their investments and this is increasingly difficult in the low rate low yield environment especially ARF clients. While the returns may be available from equity markets, many investors are anxious about investing directly in to equity markets.
One solution to this investment dilemma is a Structured 24.3% Fixed Return Bond which pays a fixed return of 24.3% (4.05% paid out each year) regardless of the performance of the financial markets or the performance of the underlying investments.
This income feature is very useful for investors seeking:
- Investment Income – Investors in this Bond receive a guaranteed annual income of 4.05% paid out each year.
- A Hedge Against Market Risk/Capital Loss – if the underlying investments have fallen at maturity, the fixed return of this Bond will have the effect of reducing the product loss.
The underlying investments are international equity indices:
- The Eurostoxx 50 Index
- The S&P 500 Index
- The FTSE 100 Index
- The Nikkei 225 Index
The Bond provides soft capital protection, i.e. investors will receive back their initial capital in the event that none of the 4 indices has fallen by -35% or more at maturity. If any of the 4 indices has fallen by -35% or more at maturity, investors will receive the performance of the worst performing index, no matter how much it has fallen.
The term of the investment is 6 years however there is access to your capital during the term. The investment is available to pension, Approved Retirement Funds, personal and corporate funds. Closing date is 28th February 2018.
If you are interested in finding out more about this investment please contact us on 01 2375500 or email firstname.lastname@example.org and we will explain more about the investment and discuss if it is suitable for your portfolio.