Following the significant falls in markets in recent months, Bank of Ireland Life today, 12th January 2009, encourages pension savers to review their pension fund as soon as possible, as the corrective action required to achieve their desired income in retirement may not be as bad as people fear.
Rather than rely solely on markets rebounding to their Celtic Tiger highs, Bank of Ireland Life are recommending that pension savers review their pension now. While history has shown us that markets can make very significant gains following severe falls, pension savers should not rely on this alone.
The life and pensions company says that getting your pension fund back on track to provide the level of income you aspire to at retirement will potentially require an increase in the amount you contribute, but it may not be as bad as people think. Taking action now will give you back some control over your financial future, while avoiding the issue may only lead to disappointment later on, when it’s too late to do anything.
The amount required to bring your pension fund back on course to give you a comfortable income in retirement, depends on several factors including your age, the length of time to go before you retire, and how much your fund is behind target. The key is to seek advice from your financial adviser in relation to your individual circumstances.
For example a person who started their pension ten years ago at age 30, earning €30,000, and whose pension fund has suffered an average loss of about a third of its value, can top-up their pension by €112 a month, with the aim of putting their fund back on track. After tax relief*, this translates to a net cost of just €66 per month, a small outlay to position your pension fund to produce an estimated income at retirement of two-thirds final salary, less the State pension.
*Higher rate tax relief, the net cost can be reduced by a further 6.75% in PRSI tax relief if the pension customer is an employee
|Started Pension: 30 yrs
Current Age: 40 yrs
Retirement Age: 65 yrs
|Current Salary (indexed annually to protect against inflation)||€40,320|
|Current pension payment (indexed annually to protect against inflation)||€591|
|Estimated annual pension income at retirement age 65 (2/3rds final salary less the State pension)||€38,432|
|Projected annual pension income at age 65 if no increase in pension contributions||€33,606|
|Final Pension Shortfall||€4,826|
|Monthly Pension payment required to meet target pension at retirement age 65 (indexed annually to protect against inflation)||€704|
|Monthly pension payment increase (indexed annually to protect against inflation)||€112|
Commenting on the pension figure analysis, Stephen Byrne, Pensions Manager, Bank of Ireland Life said; “Pension savers are understandably upset that the average pension managed fund has lost about one-third in value over the last year, and many don’t know what to do.”
“For those with ten years or more to go to retirement, the good news is that you can actively manage your way through the current financial storm and take control of your pension fund. If you increase your monthly pension payments now, you could recoup losses to date and remain on track to meet your desired income at retirement.”
“A pension is still the best long-term option available in the savings market today. Not only are you currently buying low with a view to selling high in years to come, but you could also benefit from significant tax relief on your savings of up to 41%.”
Bank of Ireland Life believe that now is the best time to consider investing in a pension, with share prices of many quality companies significantly discounted relative to their true value. They say that even a ten per cent increase in your yearly contributions could dramatically affect the quality of life you can expect when you retire. And while it may seem a long way off, acting now is the best way to make a difference in the future.
Notes to Editors:
Assumptions for worked examples:
- Salary in December 1998: €30,000
- Salary in December 2008: €40,320
- Starting age: 30.5 years (DoB: 01/06/1968)
- Current age: 40.5 years (DoB: 01/06/1968)
- Pension premium and annual salary index at 3% per annum.
- Male Life
- Normal Retirement Age: 65 years
- The annuity rate used is based on no spouse’s pension, 2% pension escalation
- Targeting 66.67% of the client’s final salary
- Assumes 6% p.a. gross investment growth
- 1% annual management fee
- 3% premium charge for premiums >€1,000 per month and 5% premium charge for premiums <€1,000 per month
- Assumes that the State pension will increase at a rate of 3% p.a.
- If customer doesn’t increase premium then final fund shortfall will be €84,382. The final pension payable will be €33,606, giving a pension shortfall per annum of €4,826. If the customer increases his premium to €704, an increase of €112.68 then the target pension should be reached, assuming 6% growth p.a.
Pension Contribution Tax Relief Limits:
|Age||Percentage of Net Relevant Earnings / Remuneration|
|Up to 29 years||15%|
|30 to 39 years||20%|
|40 to 49 years||25%|
|50 to 54 years||30%|
|55 to 59 years||35%|
|60 and over||40%|
- The Government has set certain limits on the percentage of earnings on which you can claim tax relief. It is important to remember that tax relief is not automatically guaranteed; you must meet the Revenue requirements.
- Standard rate tax band 1998 IR£14,000
- Standard rate tax band 2008 €35,400 – 2009 €36,400
- Approximately two-thirds of Bank of Ireland Life’s pension customers are invested in a lifestyle pension fund, which aims to protect the growth achieved on the pension fund by moving the fund to safer assets in the five years before retirement. For those invested in a pension lifestyle fund and now approaching retirement, many will have been largely protected against the sharp falls in stock markets over the last year.
For further information contact:
Public Relations Manager
Bank of Ireland Life
Tel: 01 617 2586
Mob: 086 856 2929
Group Consumer Communications Manager
Bank of Ireland
Tel: 01 604 3750
Mob: 087 226 9324
Warning: The value of your investment may go down as well as up.
Warning: Past performance is not a reliable guide to future performance
The content of this document is for information purposes only and does not constitute an offer or recommendation to buy or sell any investment or to subscribe to any investment management or advisory service. Please note that mention of specific stocks/shares or investments is not a recommendation to trade in those stocks/shares or investments.
New Ireland Assurance Company plc trading as Bank of Ireland Life is regulated by the Financial Regulator and is a member of the Bank of Ireland Group.