Don’t make any quick decisions about your pension, urges expert

One of Ireland’s top pension experts has warned Irish consumers to check their pensions and seek professional advice before making any decisions on it.

Mr Gavin Gilmore, Power Lynch & Associates said that, while many people were finding it hard to make ends meet in the current economic climate, it was important that they fully understand the implications of any decisions they make about their pension payments.

“Don’t do anything based on comment as it may not be true in your case. For example it could be said that pension fund performance is poor, and if you were to review the performance over a three or four year period or so, this could well be the case.

“However pensions are designed to perform over a long period of time, typically at least 20 years. If you look at average pension managed fund performance over a 20-year period you will see that they have generally returned circa 7 per cent per annum”, These results have been achieved despite the fact that this 20-year period has included a multitude of financial and economic crisis,” Mr Gilmore explained.

People invest in pension funds for two key reasons - they get tax relief on it and they ensure that they have sufficient income to live on when they retire.

When you are working out your weekly or monthly contributions, you need to work out how much will be required in order to live comfortably when you finish your working life.

“Young people who are working should start a pension fund without delay. It is not sufficient to simply rely on the old age pension in the current economic climate. By starting the pension when you are young means the weekly payments are less expensive than if you start a pension in your fifties,” he said.

Mr Gilmore answered some questions about pensions that are relevant to today’s economic climate:

I have had to take a pay cut and I am finding it difficult to pay the pension contributions each week, what can I do?

“The pension is a way of providing an income for you when you retire. So if at all possible, keep making the payments. However if you and your family are not able to make ends meet, then you should meet with your pension broker and work out a solution. For example you can agree to reduce the amount paid every month or yearly. Or if necessary suspend the pension contributions until your financial circumstances improve.”

I have lost my job and I have serious financial difficulties. Can I get the money I paid into the pension?

“It may be possible, it will depend on your age and the type of pension arrangement you have invested in. However we advise that this should only be done in an extreme emergency as the pension is the money you need to live on when you retire.”

The company I worked for has closed. I have been paying into a company scheme for years, is all that money gone?

“The money paid into the pension scheme is yours and, by law, it must be ring-fenced separately from the company’s finances. So it should be still there. Check with the trustees of the pension fund or the insurance broker working with the trustees about the status of the fund and your contributions. If you cannot get information you can contact the Irish Brokers’ Association, the Financial Regulator, the Irish Pensions Board or the Director of Consumer Affairs for assistance.”

I am 47 and self-employed. Ten years ago I opted to invest in property as opposed to investing in a separate pension fund. The property prices continue to fall and I am in negative equity. Should I sell now and put the money in a pension?

“You need to sit down with your broker or financial adviser and work out how best to resolve this issue. As you have almost 20 years to go before you retire, it would make sense to give the property market a chance to recover in the coming years, though of course there is no guarantee that it will! On the face of it, selling your property now and ending up still owing money with no asset that may appreciate in value in the future is not a very appetising proposition.”

What type of investments should be in my pension plan?

“Every pension is different as every individual with a pension has different needs and circumstances and attitude to risk. A plan for a 60-year-old is more likely to be conservative, ensuring as much as possible is saved in cash and insulated from the vagaries of the stockmarket when he or she reaches 65. Whereas a plan for a 35 year old will generally have more risky investments included. A good long-term plan will have a mixture of equities, commodities, bonds and cash included, and the asset mix will change as the person approaches retirement age and/ or his attitude to risk changes”

I keep paying into a pension, but I don’t have a clue what it is worth. Should I contact the company?

“It is very important that you meet with your broker at least once a year to review your pension. The plan will only work if those managing it can work with you to ensure it meets your needs. So as a New Year’s resolution, meet your broker to discuss your pension.”

How will the Budget affect my pension and insurance?

“The main point of the Budget as it affects my work as a pension adviser is that for the moment the attractive pension relief from income tax remains, but for how long? Avail of the benefits now. The second main point is that it is evident that the value of the Social Welfare Contributory pension is being eroded over time, and it is going to be up to us all to provide for our own salary in retirement. So make sure you adequately provide for this.”

Mr Gavin Gilmore QFA FLIA TMITI is the Financial Planning Director with Power Lynch & Associates an established financial services broker.

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