Pensions demystified, it's really just another way of saving

When we talk to people about retirement, most are looking forward to it and use phrases like “the longest holiday of their lifetime”. 

In a world that is getting busier and less structured in terms of working patterns, it is great to be able to look forward to a life that is not dictated by the demands of employers and customers.

 The one thing that I hear people do miss though is “pay day” every week or month. The reality is that if we are to enjoy our retirement, we need money to do so.

It is a big help that the State Pension provides a decent income — if you qualify for it and if you start to get it when you want to stop working. But is just under €250 per week enough to cover your bills and allow you to enjoy life?

 Many would like to supplement this with additional income which comes from a private pension. In our recent research, carried out with Red C, it was really clear that Irish people are thinking more about their financial future than before but they do not understand what steps they need to take. 

Half of those in the survey said that they don’t understand pensions but the majority are thinking more than ever about their financial future. Even among the majority of those who have pensions, they struggle to understand the system.

Some interesting statistics were that 59% are thinking about their financial future more than before the COVID pandemic and more than a third (35%) are thinking about their retirement than before the crisis. While we know this is important, do we know enough about it? 

Just over half (53%) understand how pensions work — interestingly men (59%) have much greater faith in their knowledge of pensions than women (47%). The tax breaks associated with pensions are a key attraction but less than half (44%) understand how it benefits them.

This data is also consistent with other recent research we’ve conducted on understanding Financial Wellbeing and literacy in Ireland. People are worried about their finances and are crying out for help to deal with them.

We cannot be blind to the fact that there are barriers to doing something about this, with affordability being understandably the primary challenge with 54% citing it as the main reason not to take out a pension. When we look to ask this audience, they tell us that they are saving more than they did in the past (45%) but we have to ask are they saving in the right way? When they think of saving, do they think of saving for retirement in a pension, taking advantage of a very generous tax system that really helps them to build up a decent pension pot.

The next big barrier is lack of understanding as a reason not to have a pension. Many people think that pensions is a very complex topic, which puts them off thinking about it or doing anything about it. 

The gender split for that age group is also interesting with this younger cohort with 30% of females saying that they don’t understand pensions while the equivalent figure for males is much lower at 18%.

We need to de-mystify this and show that a pension plan is just another way to save but with the added advantage of the government helping you to build up your pension pot through tax relief. People need help and advice and that process should be all about three simple steps:

• What you have in place or saved. 
• What you want – what are your goals and ambitions.
• Can we put a plan in place to help you achieve what you want?  

One part of pension saving that is often only highlighted when things go wrong is how your pension money is invested. It is encouraging to see the average Irish pension fund up by almost 25% over the last year. 

Investing has plenty ups and downs but we have seen the value of staying the course with your plan over the long term. Your plan is flexible allowing you to mitigate these dips as your retirement date get closer. 

The important factor is that when you have decided to start your pension journey, that you get your money working for you in a way that reflects you and your attitude to risk. We talk about optimising your savings – not maximising. Optimising is all about delivering the best possible return but within the level of risk that you are comfortable with.

Once you are up and running, you need to keep in touch with your pension plan. Once a year is usually enough to meet your advisor to make sure that you are still on track. Use a trigger to remind you, like when you get your car serviced, you go and meet up to review your pension arrangements. 

This is when you look at what has changed in your world (your circumstances), what has changed in our world (new factors in the pension saving landscape) and what has changed in the world (how your pension investment is performing).

This is the time of the year when you see the ads and hear people talking about pensions. There is help and advice available in every Bank of Ireland branch. The key thing is to take action and find out what steps you can take, with that advice, to provide a better future for you and your family.

Contacts

www.bankofireland.com/pensions

• Bernard Walsh, 
• head of pensions, 
• Bank of Ireland.
• Email: bwalsh@boi-ii.com