Change your mantra: a pension is for life, not just for the October deadline
We see it year after year. A client - usually a business owner - goes to their accountant to have the books reviewed and is told that they need to make a pension contribution to bring down the tax bill. The client duly complies, but without much thought as to what the contribution is achieving beyond reducing their tax exposure. The client doesn’t revisit the issue until next year’s 31 October deadline.
There is no doubt that a pension is the best savings vehicle in the State and the advice to maximise contributions is great, but clients owe it to themselves to understand exactly how these contributions will set them up for retirement. What amount do you need in retirement? Will you have enough? When can you hang up your work boots? Who will get it if you die? These are the basic questions that need to be answered if you want your pension to do more for your life than just cut your taxes in the short-term.
"Everything from investment property and share portfolios to your inheritances and the personal pension you took out last October needs to be under your financial umbrella."
Don’t think pension, think retirement
Not even one of our clients will rely exclusively on a pension to deliver their income in retirement. Retirement is the rainy day that requires all of your assets and income streams to be considered – everything from investment property and share portfolios to your inheritances and the personal pension you took out last October needs to be under your financial umbrella.
Life expectancy is rising all the time and you need to ensure that you have the financial resources to get you through. The classic advice is that you should aim to have your final cheque bounce, however most people would like to leave something for their families, too, so setting up and maintaining diverse assets and income streams is a good strategy to maintain wealth into retirement.
Sometimes you forget things
Probably one in 10 of our clients have forgotten a pension along the way. In a 40-year career, it’s likely that you’ll have had multiple employers and it’s not unreasonable to forget what your pension benefits were in each one. One client worked for a UK insurance company for nine months and had dismissed any idea that they had a pension there. But they did – and it was worth £34,000. Another client amassed 60 separate pension contracts over a career in an accountancy partnership. On review we found the figure was actually 61 and the value of the extra contract was €70,000.
In the event of an event, take advice
Throughout your career you will move job, get married, have kids, get divorced, get promoted, get fired, start a business, sell a business, get ill, die. A pension is typically your biggest single asset and there are very complex rules about what happens to it in the event of each of these events. Take proper advice when they occur. It’s worth the investment. Too many people step over euros to pick up pennies.
Don’t do a DIY job
Today, if a client decides they want a pension, the menu of contracts for them to choose from is nothing short of ridiculous. Between PPPs, EPPs, AVCs, BOBs, SSASs and ARFs, it’s no wonder people run for their sock drawer before sorting out their pensions. We don’t even do good acronyms. The complexity calls for the kind of expertise that can simplify your objectives and narrow your choices. We recommend a DDIY approach – Don’t Do It Yourself.