Your pension in Wealth Management

Your health is your wealth… but so is your pension!

This is an alternative take on a well-know phrase that was quoted to us recently by a client at a review meeting! Thankfully this client, who is now well into retirement, is in the fortunate position of enjoying a great lifestyle afforded by astute financial planning over a period of many years.

And to us at Harvest Financial Services, this is a really important element of what wealth management is all about. In our eyes it’s about building, protecting and growing your asset base to allow you live the life you want to live, both today and for all of your life.

And there’s just no escaping the fact that retirement planning is a cornerstone of your overall wealth management strategy.

You’re probably (and hopefully) not going anywhere in a hurry

We can’t escape the fact that we’re all living longer. Better diets, better healthcare and better supports for older people have resulted in us living on average well into our 80s. Of course many of us will live a lot longer than this. In fact it is now accepted wisdom that the first person to live to be 150 years old has been born – that person will need some retirement fund to see them through retirement!

Living longer is of course great news. That is, once you have the financial means to support yourself. This is where careful retirement planning plays such an important role, ensuring you can live the life that you want for all of your life. That requires focus and financial planning during your working years.

Will the Government bail you out?

You would be wise not to hold your breath on this one. Pensions are a major headache for the State and represent the biggest ‘can’ of all that is constantly being kicked down the road. State old age pensions and public servants’ pensions are paid for out of current tax revenues; there are no savings in place for them. The State’s liability for these unfunded future pension costs is estimated at approx. €440 billion!  When you compare this to the National Debt, which stands at a meagre €206 billion, it gives you a sense of the scale of the problem that is being stored up.

So what the Government is trying to do is keep a lid (and reduce) the cost of public service pensions, and also minimally increase the State old age pensions. The top rate of the State old age pension is now €238.30 per week – this amount has increased by only a few euros over the last decade. Also you now have to wait longer for your old age pension to start. Younger people today won’t get it until at least 68 years of age.

So you’re on your own… the Government isn’t the answer. In fact some people now plan their retirement with the assumption that there will be no State pension available when they are being given the gold watch!

…But the Government does help through tax breaks

It’s not all bad news though. Pensions represent one of the last great bastions of tax relief, with full tax relief available to companies and individuals (at their marginal rate of tax and within some limits) on pension contributions. Retirement funds also grow tax-free and there is a range of tax saving opportunities available at retirement. So don’t despair, the Government do make it easier for you to address the problem yourself.  Remember, tax planning is a very important and very significant part of wealth management.

Pensions are simply long term savings

This is how we approach pensions within our wealth management team. Your Harvest advisor takes care with regards to helping you build a risk appropriate investment portfolio that reflects the investment timeframe, your attitude to risk, etc. You can then utilise the tax efficient mechanisms available to you, to ensure you maximise your long-term savings. And these then simply sit alongside your other short-term and medium-term wealth goals.

Of course it’s natural and always easier to focus more on your immediate goals – trading up your house, educating your children and building an emergency fund. These are all very important matters and deserve attention. But don’t focus on these at the expense of funding for your retirement as this will represent such a large part of your life and requires your attention throughout your working life. There’s a common rule of thumb that is sometimes mentioned, that for a decent pension you need to save half your age. So if you’re aged 40, you should be saving 20% of your salary.

But of course we don’t operate around rules of thumb in Harvest! We like to look at the overall picture in relation to your wealth, of which retirement planning is only one element. We then help you to manage your wealth to achieve all your financial goals because we want you to live the life that you want today, tomorrow and until the end of your days.

How do I find out more?

To find out more, please contact us on 01 237 5500 or email justask@harvestfinancial.ie and one of our advisors will be in touch.

Published June 2017

Pensions Made Easy