Bob Dylan, Folk Legend and Pension Prophet?
June 9, 2014
Pensions – “The Times They are a changing!”
There is a song by Bob Dylan in which he tells us to gather around, that the waters are getting higher and we better start swimming or we’ll sink like a stone. This reminds me of the current position we find ourselves in relation to our pensions.
If you are under the age of 52, you may or may not be aware that the government changed the age in which you will be entitled to receive your OId Age Pension from 65 to 68.
If the government pension was to remain as is i.e. in the region of €12,000 per annum, this would mean that you would lose out on three years of €12,000 i.e. €36,000. If you are a married person your spouse may also miss out in those three years and that €36,000 so effectively the Government has take €72,000 off our retirement income.
Unlike other more hot blooded European countries we didn’t march on the street, we didn’t riot, we just got on with it as usual.
Why has the Government made this decision? Well part of the reasons is because of the demographic time bomb that exists in relation to the state pension. At the moment for every one person in receipt of the state pension there might be 6 people working and paying Income Tax to fund the state pension for those over the age of 65.
In 20 years time there may only be 3 people working for every one person in receipt of the state pension. The reasons for this:
• We’re having less children
• We’re living longer
• Emigration and unemployment.
Not only has our normal retirement age been pushed back from 65 to 68, we cannot guarantee what level of pensions we might receive into the future.
So by choosing not to riot, we chose not to get mad but can we get even? Well the answer is yes because pensions still attract tax relief on their contributions and if you’re a higher rate tax payer for every €100 you invest into a pension the Government will invest a further €41 on your behalf in the form of tax relief. There is no doubt that private pensions and employer sponsored schemes are a way of bridging the gap between what the Government may pay you at age 68 and what your requirement for income may be when you retire.
So again to paraphrase the great Bob Dylan once more ‘the line it is drawn, the curse it is cast… as the present now will later be past, the order is rapidly fading’.
Talk to your employer today in relation to providing you with pension benefits in your place of work. Look at previous employment and any old pension benefits that you may have arising from them. Talk to a Financial Advisor about making tax efficient contributions to a retirement fund. Take the future into your own hands now, you cannot rely on future Governments for the times they are a changing.[/vc_column_text][/vc_column][/vc_row]
Our Top Ten Financial Tips
With our top 10 financial tips we hope to give you a helping hand when it comes to managing your finances.
1. Plan a household budget:
A family budget can help you control your household spending so that you have enough money to pay your bills and cover the basics on an ongoing basis.
2. Start an emergency fund:
Always have some money put by for unexpected events – we never know what’s around the corner. A rule of thumb is to have at least 3 months’ salary saved for emergencies.
3. Get better value:
The Economiser is an interactive tool from the National Consumer Agency that helps you compare your spending against what other people are spending in areas such as mobile phones, broadband, groceries and energy.
4. Manage your credit card. Here are some handy tips:
Set up a direct debit
Take the hassle out of making manual payments to your account every month by letting the Direct Debit do the hard work for you. You can choose what percentage you want to pay and this means you avoid any unnecessary late payment fees and reduce interest charges by always paying on time.
Plan your spend
Make a list and decide what you will use your credit card for e.g. emergencies, lifestyle purchases such as concert tickets, plane fares etc and what you will use your debit card for e.g. every day items such as grocery spending etc. Set yourself guide lines and stick to them. This way you avoid any unnecessary impulse spending.
Check your statement
There’s a number of ways to check your account including over the phone and on-line. Reviewing your account regularly will keep you in control of your spending and you won’t accidentally go over your credit limit and incur fees.
5. Get protected: Life insurance is not a luxury – it’s a need:
If you want to cut costs, buying an insurance plan might not appear to make much sense. But a life cover plan is not a luxury, it’s a fundamental need. It helps maintain a family’s regular standard of living if something happened to the main breadwinner. Research conducted in December 2010 by iReach Market Research found that nearly six in ten Irish parents felt they would struggle financially in the event of death or illness in the family. That’s why protection is something which really needs attention.
For example, in reality the cost of €100,000 life cover is actually below €20 per month! So, for less than the cost of three bottles of wine a month you could help get your family protected.
6. Get your tax back:
Although some tax reliefs and credits have been abolished in the recent Budget, you can still claim tax back on many items, for example
Medical fees
Renting your home (Rent Tax Credits)
Pension and Income Protection plans
Mortgage interest
Renting a room in your home to a private tenant (Rent a Room relief)
Service charges for refuse collection, sewage disposal or domestic water supplies
Fees paid for approved third-level courses
Why not go to www.revenue.ie for a full list of tax reliefs available.
7. Plan for your retirement:
By starting a pension sooner rather than later, you can plan ahead to enjoy the retirement you want. In the next few years, the state pension won’t start until age 68, that’s why having your own pension plan is vital. Despite the tax relief changes to pension plans announced in the Budget, those investing in pensions can still get full tax relief this year – so you should really make the most of this while you still can. In the Governments 4 year plan the tax relief will gradually fall to 20%. This is still very generous!
8. Become a super-saver:
With credit still difficult to come by, now may be the time to devise a ‘super-savings’ plan to help you get in the habit of squirreling away as much as you can. So instead of opening just one savings account, you could open a number of regular savers, each designed to help pay for things like holidays, new car, third level education costs and home improvements.
9. Be smart with your investments:
Consider an investment that suits your needs by doing a risk profile test to identify what type of investment is right for you. Generally, best advice is to spread your money across different types of investments/assets.
10. Give your finances a regular check-up:
Finally, It’s really important to regularly review your finances with your Financial Advisor, this way you’ll find it easier to keep on top of things. You can set up an appointment to review your finances free of charge.
