Private Pension

State Pensions, Private Pensions and Longevity Risk

An unexpected core issue in this general election campaign has become the State Pension age; and as a result political parties have responded with a variety of promises, election pledges and proposals to attempt to avoid being penalised at the ballot box on the 8th February.

The State Pension age is currently 66 but is due to increase to 67 in 2021. While this change was introduced in 2014; the impact on people retiring at 65 – in some cases because they are contractually obliged to do so – has not garnered as much publicity as one might expect, until now.

The well documented power of the ‘grey vote’ and the potential implications on the outcome of the election has certainly caught the parties’ attention.

The proposed changes to the State Pension Age were in part a response to rising life expectancy across the population as a whole; a good thing obviously but something that is likely to put a significant strain on both the State Pension and private pension pots.

Private Pensions

Currently in Ireland there are 5 working adults for every pensioner – by 2050 this ratio is projected to change to just 2 working adults for every pensioner.(*Source CSO and Eurostat)

The logical conclusion of all this is that simply put, and as unpleasant as it may sound, we cannot be certain that the State Pension will be payable at the same levels and at the same age as it is now.

Supplementing the State Pension

Auto-Enrolment

Changes to the State Pension system are only one area to be examined in the government’s ongoing work regarding national Pension Reform. Another area to be examined is Private sector pension coverage, and the introduction of an ‘auto-enrolment’ pension whereby certain private sector workers will be enrolled into occupational pension schemes if not already in one. This is currently due to be introduced in 2022 but is likely to be somewhat limited in its impact on many employees.

Private Pension Funding

How much your private pension is worth when you retire depends on how soon you start the pension, how much you pay in and what investment growth your fund achieves. Put simply, the sooner you start your pension, the larger the fund at retirement.

Without getting into too much detail; some of the benefits of contributing to a pension plan personally are that you receive tax relief on your contributions and tax-free growth within the pension fund itself.

PAYE employees including Company Directors can also have their employer contribute to their pension plan and the company receives tax-relief on contributions paid, subject to Revenue Limits.

With much uncertainty as to the future makeup of the State Pension, and indeed the Irish Pension System in general, the best retirement planning strategy in most cases remains funding privately into an appropriate pension structure.

Financial Advice – Helping Clients throughout their Lives

The marketing material is not intended to provide advice and is provided for general information purposes only.

The particular tax treatment contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at January 2020. Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should take such independent tax advice as you deem appropriate.

The marketing material is not intended to provide advice and is provided for general information purposes only.

The particular tax treatment contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at January 2020. Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should take such independent tax advice as you deem appropriate.