Tag: Pre Retirement

Retirement Plan

Retirement Planning

Planning for Uncertainty- Part 1

Retirement is a major life transition which is unfortunately often associated with reduced productivity and personal and financial vulnerabilities. Clients often appreciate the need to plan for retirement, particularly in relation to their finances and perhaps less so for post-work roles and activities.

There is an increasingly complex environment in which individuals must manage their financial affairs successfully to provide for retirement. For example, the continually shifting landscape of pensions legislation in Ireland including plans for Auto-Enrolment and IORP II, annuities and interest rates falling significantly, and the continued impact of the pandemic.

All this makes financial and retirement planning more challenging.

An individual’s retirement transition will be unique to them. Notwithstanding the broad range of personal experiences, there was broad consensus in a UK study on retirement transition* that there are three elements that constitute a ‘model’ or ‘ideal’ retirement transition:

  • Choice and control over the timing and mode of exit from work,
  • Your employer’s attitude to retirement, including gradual and flexible retirement options,
  • Having access to the proper resources (including financial planning expertise) to prepare for the event.

Female participants in the study mentioned the inadequacy of their retirement finances, reflecting gendered work experiences of lower pay and interrupted careers due to caring responsibilities. Many partnered women had pensions that did not ‘pay for any standard of living’, but who were financially adequate when their partner’s pension was taken into account.

Clearly financial security, preceded by financial planning, is a cornerstone for a comfortable retirement and many clients will begin this financial planning process in the years immediately preceding retirement.

However, financial planning alone is often insufficient to experience a smooth shift into retirement. Organisations such as the Retirement Planning Council of Ireland provide support, information and guidance to people planning for retirement, offering practical courses and seminars that explore both the financial and lifestyle changes retirement can bring; to help you prepare for the time ahead.

As we are a Retirement and Financial Planning firm the future blogs in this series will examine mostly the financial aspects of your retirement planning, and how we help clients navigate their retirement transition. We do not ignore the other non-financial aspects of your retirement plan – indeed, your lifestyle objectives in retirements should underpin the financial plan at all times.

As always, we are here to help with preparing for retirement. If you have any questions or concerns about your retirement plan, contact Harvest on 01 237 5500 or email justask@harvestfinancial.ie and we will be happy to assist.

*Source: ‘Planning for uncertainty’: narratives on retirement transition experiences. Suzanne Moffat and Ben Heaven, © Cambridge University Press.

More blogs on preparing for retirement will be posted in the coming weeks.

Retirement Planning for Company Directors

IORPS II

IORP II Directive – Impact on Occupational Pension Schemes.

An EU Directive, IORP II, was signed into Irish legislation on Tuesday 27th April 2021 by Minister for Social Protection, Heather Humphreys. The new regulations introduced some changes to the governance and operation of occupational pension schemes.
 
It is important to note that the regulations only apply to Occupational Pensions Schemes (OPS), which include Small Self-Administered Pension Schemes (SSAPs) and Group Company Pension Plans.
 
It does not apply to Personal Retirement Bonds, Personal Retirement Savings Accounts, Approved Retirement Funds or most Personal Pension Plans.
 
The regulations cover areas such as trustee qualifications, risk management , auditing and reporting, supervision and investment and are designed to bring benefits to scheme members.
 
However some changes to permissible investments in one member schemes, mainly SSAPs, are effective immediately and include the following:

  • > Schemes’ assets must be predominantly invested in regulated markets. This means that direct property investments and unregulated investments will be restricted to no more than 50% of the aggregate portfolio. We await guidance on what this might look like in practice.
  • > Schemes’ assets must be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings and accumulation of risk in the portfolio as a whole.
  • > Environmental, Social and Governance (ESG) issues must be considered when making investments.

The Pensions’ Authority will provide further guidance and information over coming weeks and months to ensure the new obligations are fully understood. While we await this further guidance, we can still help clients in planning to adapt their Self-Administered Pension Schemes to comply with this new legislation.

The optionality within a Harvest SSAP offers you the potential to invest in bespoke portfolios of regulated assets, to diversify your pension fund and meet your retirement planning objectives. Regulated ESG investment opportunities are also available, all with guidance from our Investment Advisory Team.

As always, we are here to help. If you have any questions or concerns about IORPS II and how it impacts your Self-Administered Pension Scheme contact Harvest on 01 237 5500 or email justask@harvestfinancial.ie and we will be happy to assist.


 

Limits for tax relief on pension

Limits for tax relief on Personal and Employee Pension Contributions

Summary of Limits for tax relief on Personal and Employee Pension Contributions

Tax relief for personal pension contributions; and employee pension contributions to occupational pension schemes is subject to two main limits:

  1. An age-related earnings percentage limit
  2. A total earnings limit.

You can get tax relief up to the relevant age-related percentage limit of your earnings in any year.

You might have more than one source of income. If you do, this relief is only from the source of income in respect of which the contributions are made.

Age-related percentage limit for tax relief on pension contributions

AGEPERCENTAGE LIMIT
Under 3015%
30-3920%
40-4925%
50-5430%
55-5935%
60 or over40%

Total earnings limit

The maximum amount of earnings taken into account for calculating tax relief is €115,000 per year.

Estate Planning – Gift Tax and Inheritance Tax – What reliefs are available?

investment portfolio

Options for Investing a Lump Sum

Savings of over €12bn were built up by Irish households in 2020 during Covid-19 lockdowns. As the impact of the pandemic wanes this should support consumption growth but for those who are looking at longer term investment, what are the options in a low interest rate environment? We have looked at some options for investing a lump sum taking three hypothetical investors at three different life stages.

Determining Your Risk Profile and Investment Objective

Firstly, it is important not to look at any investment in isolation, but rather to consider it in the context of an investor’s overall financial position. Your attitude to risk, liquidity needs, and the importance of capital security should all be explored before any investment takes place. Rather than a focus on asset classes or fund options; your investment needs and objectives should drive the final recommendation.

Your understanding of investment risk and reward is critical. While a number of factors should be taken into account in setting the appropriate level of investment risk, the overriding influence from a purely objective standpoint is your investment time horizon. For example, a 30 year old investor can often afford exposure to considerably more risk than a pensioner seeking advice for investment of their life savings.

Diversifying your investment among the major asset classes will also help to achieve an degree of balance – the allocation to each asset class within your portfolio will have a significant impact on the eventual investment return that you might hope to receive.

So lets look at three investor profiles

Singleton in their 30’s with a long term investment horizon – Equity Exposure and ESG Investments

An investor with a long term time horizon can afford to take on more investment risk and exposure within their portfolio to more volatile assets such as equities, once this is in line with their objectives. We also find that younger investors are becoming more aware of the impact of their investments on society; although this is not limited to this particular group. A focus on making your money matter is understandable when your investments (from investing in fossil fuels to tobacco companies) might sometimes contradict your own values.

ESG Investing (the ESG acronym stands for Environmental, Social and Governance) has now become mainstream – around 40% of assets managed by European investment managers involve some kind of approach to sustainable investing, and legislative developments will continue to make ESG investment prevalent.

For long term investing a multi asset investment portfolio will facilitate investment across a broad range of asset classes in line with your risk profile and for a younger client with a long term investment horizon their investment portfolio may look like an Adventurous Investment Portfolio.

investment portfolio

Young Couple with a medium term investment horizon – Balanced Investment, Regular Payments

Couples will generally have a specific investment goal in mind, whether that is saving for future education costs or planning for their eventual retirement. A balanced portfolio with a moderate allocation to higher risk assets such as Shares and Property might be appropriate depending on the couple’s objectives. You can also spread your investment over a period of time by investing in a structure that allows you to make regular payments rather than one lump sum – this reduces the overall risk of investing, and helps stress levels when watching the market and trying to decide when to invest!

Person in their 60s, a couple of years off retirement (short time horizon) – Cautious Portfolio & Investing for Income

Older clients often have more of a focus on Income when considering their investment options. In this age bracket you may be looking to invest in a portfolio that will provide you with a source of regular income distributions to supplement any private or State pension income you’re expecting to receive once you retire. Income is a real measure of value  – we find that clients close to or in retirement can take a degree of comfort from their accumulating investment income, particularly when markets are somewhat volatile.

It’s worth bearing in mind that as a 60 year old your investment time horizon might still be long-term –  is possible to invest in portfolios that are designed to produce returns as a combination of income distributions and long-term capital growth, assuming you have the ability to take on the investment risk required.

Whatever stage in life you are at, it is important to determine your investment objectives, risk tolerance and capacity for loss before you make any investment decisions. Whether you’re new to the investing or a sophisticated investor our Advisors are ready to speak to you about an investment portfolio that suits your needs. Talk to us at justask@harvestfinancial.ie or call our team on 01 2375500.

Investing in Times of Crisis

save for retirement

To Save or Not to Save? Why is that a Question?

Top 3 Reasons to Save for Retirement Now

There are plenty of reasons (excuses?) for not saving for retirement, and most have some merit!

On the other hand, there are plenty of good reasons not to put it off any longer! Here are three to consider:

  1. You don’t want to rely on the State Pension.
  2. You have access to a tax-deferred retirement account that will reduce the taxes you pay.
  3. The compound effect of investing in a pension account over time can give you a more comfortable and happier retirement.

Sound good? Let’s consider those three factors in more detail.

  1. Younger workers should no longer assume that the State Pension will be available when they retire.  The Irish Fiscal Advisory Council have advised that it would cost the State an additional €370 million a year to provide for new state and public sector pensions between 2021 and 2025. Our ageing population, longer life expectancies and more people in retirement than in the workforce means there is less people paying PRSI to fund the State Pension. As the State Pension is paid from current PRSI receipts, if these trends continue it may not be sustainable in it’s current form in the decades ahead. It is now more important than ever to start thinking about how you will fund your own retirement.
  2. The number of investment opportunities out there is infinite, but when it comes to saving for your retirement, your initial focus should be on maximising the tax reliefs available so that you can invest as much as possible from gross income. A pension scheme will:
    1. Reduce the amount of income tax on pay on your earnings.  
    2. Allow your investments to grow tax free.
    3. Allow you to take a portion of the fund as a tax free lump sum at retirement (potentially up to €200,000).

If you work for a company, you may have access to a pension scheme where your employer matches a portion of your contribution.

If you are a company director you may use the pension to transfer profits tax efficiently in to your own name.

  1. The compound effect of investing in a pension account over time can give you a more comfortable and happier retirement.
  • In a personal investment you could be paying exit tax at 41% or Capital Gains Tax at 33% on investment growth – there is no tax on investment growth within a pension so you are reinvesting more money..  
  • The longer the money is invested, the more investment returns are reinvested.

Benjamin Franklin gave a very simple explanation of compound interest: “Money makes money. And the money that money makes, makes money”. So if you are going to have to save for your future, why not do it as soon and as tax efficiently as possible.

If you have any queries in relation to the above, please contact Harvest on 01 2375500 or justask@harvestfinancial.ie.

Investing in Times of Crisis

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Address:
Block 3, The Oval, Shelbourne Road, Ballsbridge, Dublin 4. Postcode: D04 T8F2.
Tel: +353 (0) 1 237 5500, Fax: +353 (0) 1 237 5555. Email: justask@harvestfinancial.ie