New Ireland Assurance today, 19 October 2009, revealed that 50% of the Irish adult population under the age of 45 have no personal savings in place to provide for their retirement future. Following a major survey of the aspirations we hold for our retirement, it seems half have no pension plan in place to sustain their standard of living.
New Ireland Assurance today, 19 October 2009, revealed that 50%1 of the Irish adult population under the age of 45 have no personal savings in place to provide for their retirement future. Following a major survey of the aspirations we hold for our retirement, it seems half have no pension plan in place to sustain their standard of living.
What is most worrying is that 35% of those surveyed aged between 35-44 still don’t know how they will fund their lifestyle in retirement, leaving them with little time on their side to make up this severe pension shortfall.
The reasons behind this lack of pension provision vary. Undoubtedly over the last 18 months, the global economic downturn and fall in equity markets have exacerbated the issue, shaking peoples’ confidence in investing generally. The Average Balanced Managed Fund2 was down -19.6% in the period June 08 – June 09, with the result that many people now believe putting money into a pension plan won’t deliver the fund they will need for their retirement.
However the irony is that, the need to plan for retirement has never been greater. We are living longer than ever before, up to 20 years in retirement3,which is a good thing until you consider the cost of spending more years in retirement. Today, for every person retired there are six working. However, by 2050 it is expected that there will be less than two people working for every one person retireda. With fewer people working to support the State Pension in the future, the onus is clearly on individuals to make adequate provision now, for their own retirement.
For those who are worried about the prospect of putting money into an equity based pension investment, and want the peace of mind of knowing they will have a pension fund when they need it, there are other options.
The IRIS strategy from New Ireland is unique in the Irish market. It tailors your investment strategy depending on your age, a process called ‘lifestyling’. The aim is to provide you with a monthly pension income and a tax-free lump sum at retirement. Unlike other providers, IRIS ‘lifestyles’ go from inception until retirement, so the investment strategy changes as retirement approaches, to protect the retirement benefits you have built up.
Even in times of extreme market volatility, such as the last 18 months, IRIS continues to deliver. The table below shows the performance of IRIS compared with the Average Pension Managed Fund. So if a person retiring in 2009, had invested in IRIS 2008-2009, they would have received a positive return of +10.5%*, compared to the Average Pension Managed Fund which returned -12.6%* in the same period.
+ Source Bank of Ireland Life. Performance is to 30.07.09. Performace is quoted gross of taxation and charges.
++ Source Mercer. Performance is to 30.07.09. Performace is quoted gross taxation and charges.
For many people, affordability has increasingly become an issue. Faced with the choice between stopping their pension contributions or sacrificing a more immediate outlay, most people will consider stopping their pension contributions. The fact is, even saving a little now can go a long way towards providing for your retirement. For just €2 per day you could build up a fund of €126,000*** for your retirement.
Furthermore, by saving into a pension, you can also avail of the very attractive tax saving benefits currently available on pensions. With tax relief of up to 49%, every €196 saved for your retirement, only costs you €100 net of tax**.
Commenting on the survey results, James Skehan, Head of Pension Sales, New Ireland said, “Those relying on the State pension, which is currently €230.30* per week, as their only source of income, are effectively sleep-walking into retirement. It is unfortunate that unless they take action now it may be too late by the time they get a wake-up call. My advice to people today is to start their pension early, and review it regularly. For those who are late starters, or who need to top-up their pension, the Government offers very generous tax relief of up to 49%** on payments to a pension plan,” concluded James Skehan.
1Research conducted by Empathy Research, a division of Pigsback.com, on behalf of New Ireland Assurance during October 2009 with a nationally representative sample of 1,000 adults aged 18 – 45 in the Republic of Ireland.
2 Source: Moneymate. Performance returns are based on the period 30th June 08 to 30th June 09 and are quoted gross of tax and fund management charges. The comparison figures are based on the average of the Balanced Managed Funds available in the Irish market,
3 Quarterly National Household Survey, Central Statistics Office, Q4-2005
a Government Green paper on Pensions, Speech by Mary Hanafin, April 2008.
*State Pension (Contributory) as at January 2009
** Assuming higher rate tax payer and that they also qualify for 4% PRSI, 4% Health levy relief It is important to note that tax relief is not automatically granted. Revenue terms and conditions apply.
***Based on a 25 year old, with salary of €30k p.a. investing €60 per month in IRIS 2048-2049.
Assuming growth of 6% and premium indexation at 3%. Including 5% premium charge and 1% Annual Management Charge. Assuming normal retirement age of 65. These figures are estimates only, they are not a reliable guide to the future performance of this investment..
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