In China they are currently celebrating The Year of The Horse. The Chinese year runs from 31st of January 2014 to the 18th of February 2015. They celebrate the year of the horse as the horse is to them a symbol of travelling swiftly to victory.
In Ireland we don’t normally designate different years to different happenings or events but it does happen from time to time. There are years when certain cities are designated as being cities of Culture. In England every four years a city is granted the title of City of Culture. In 2013 this was Derry and in 2017 it will be Hull. Naturally all types of wonderful events take place in those cities during that year and it is a splendid opportunity for a city to get its act together and really show itself off in the best possible light.
One of the big events in my City of Cork was 30 years ago when in 1985 Cork enjoyed the year of Cork 800. It was a celebration of its 800th year as a city that received its charter in 1185. It was a wonderful year of celebration and all types of tourism promoting activities. Cork was also European Capital of Culture in 2005. As a result we are now a reasonably cultured lot here in Cork!
Anyway, as there is no formal celebration this year in Ireland I have decided to create my own one and I have designated 2015 as The year of the retirement plan and I want all of you involved in giving financial advice in Ireland to come on a journey with me during this exciting year of 2015 to encourage as many people as possible to start to make contributions into their retirement plans before the year is out.
Good pension planning is reaching your selected retirement age and having the financial freedom to do all the things that remain on your bucket list!
My plan of action was prompted by an excellent feature on retirement planning by Conor Pope in The Irish Times of 12th of January last when he mentioned a survey done before Christmas by accountants Deloitte that confirmed that more than half of Irish working adults don’t have a pension plan in place.
That is a staggering indictment of the lack of financial planning of half of the people working in Ireland and also reflects poorly I think, on the success of those like me who work in the financial services retirement planning industry in Ireland.
It is very easy to postpone making good financial decisions when you are young. When you are in your 30’s or in your early 40’s, retirement age is far out into the future and you really need someone to sit you down and explain the financial wisdom of doing something now rather than waiting until later.
And in the young person’s mind there are some real negatives about starting a pension plan now;
- The pension levy
- Heard from their friend in the pub that some pensions were bad value
- Charges are too high
- Tax relief might go
- There is anyway an old age pension scheme available in Ireland.
Ireland has indeed gone through a really rough few years and in recent times there has been much financial uncertainty. As a result everyone was to some degree unsure about their financial futures. Thankfully the last year or two have brought a little calmness back into Ireland’s financial world and now is the best time in years to talk to people about their financial futures.
There are also some Positives right now!!!!
- Michael Noonan our Minister for Finance has promised the levy will finish this year so hopefully pension funds will once more grow totally free of tax.
- The retirement planning industry has moved very positively forward over the last few years. A pension plan should now accurately mirror our customer’s attitude to risk and also take into account the number of years to retirement. The pensions that are available now are much more competitively priced than in the past and there is now almost total transparency on costs and charges.
- Tax relief is still available on company and personal pension payments within certain guidelines.
The old age pension in Ireland is €230 per week and will probably just about put food on the table. Retirement age has already moved from 65 to 68. It might go to a later date. Hopefully it will still be there in the future but its sustainability is uncertain. Perhaps it makes sense to have another pot of money on the side to give you a little more financial independence.
Why not pay some money to yourself rather than the tax man?
Sometimes it is necessary to say something that will grab someone’s attention and I have found that the choice of paying money to the tax man rather than to themselves to be a little unpalatable to the normal Irish man or women.
A few examples of the extra tax people will pay voluntarily if they don’t claim the pension tax relief available.
1) A woman aged 45 on a salary of €50,000 would pay some tax at 40%. At her age she could pay up to €12,500 per annum into a pension plan and claim full tax relief on this at 40%. She plans to retire in 20 years. The tax relief would be €5,000 pa so if she gets to 65 and doesn’t pay into a pension she will pay unnecessary tax of €5,000 x 20 which comes to €100,000. That’s a lot of tax!
If she does start a pension now at age 45 and pays in even €1,000 per month and if her fund grows in value by just 4% pa (not guaranteed as values will rise and fall) she will have a retirement fund worth €366,774 which would give her income for life at 5% of over €18,000 pa.
2) Let’s say the same woman procrastinates and delays starting the same monthly pension plan until she is 55. She will have paid €50,000 in unnecessary taxes to that time and her pension pot of money will be worth around €147,000 and at age 65 will produce income for life at 5% pa of just €7,360 pa.
So let’s make this year The year of The Retirement Plan. Let all of us who are involved in this most important of industries that helps people to help themselves, do what we can to talk to as many young and slightly less young people to try to get them to start putting some money away now for later on. Let that be our New Year’s resolution for 2015.
Ted Dwyer Family Business