I have a pension, so I can just sit back and forget about it until I retire – Right? Wrong!
You have taken the first step when you put your pension plan in place but how can you know that your financial future is taken care of if you don’t review it. Knowing what income this pension will provide you in the future will either give you peace of mind or make you realise you need to make changes before it is too late.
It is important to have an understanding of what income your current level of pension savings is likely to provide you with. You should then compare this against the income you think you will need to support the lifestyle you want after you stop working.
By reviewing your pension plan with a Financial Broker you will be able to check your progress and it will give you the opportunity to adjust the amount you’re saving, your expectations, or both, so that there are no surprises as retirement approaches.
Have your circumstances changed?
If your circumstances have changed since you took out your pension plan or last reviewed it then you should review your plan in light of those changes. If you have changed jobs or your income has increased you may want to make changes. You many now have dependants that were not there when you started your pension. You might have started your pension with a low contribution with the aim of increasing it. Or maybe you stopped paying into your pension plan during a time of low earnings. Whatever has happened, it is probably time for a review.
Do you know the impact of changes outside of your control? The age of eligibility for the State Pension (Contributory) has changed meaning State Pension payments are no longer paid from age 65. If you were born on or after 1 January 1961 and are eligible to claim the State Pension (Contributory), you will be 68 before you receive it.
That’s potentially a three year gap in retirement income which could mean a shortfall of over €70,000 for a married couple. Does your retirement plan take the delay in this payment into account?
How do I know if I’m on track with my pension?
You can get a projection of your expected income in retirement from your pension provider. You can then compare this against the income you think you will need in your retirement and take action if there’s a shortfall.
Depending on the type of pension plan that you have, you may be able to pay more into your plan by increasing your contributions into that plan, or by taking out a separate Additional Voluntary Contributions (AVC) plan. If you are a member of a pension scheme through work, you should check if your employer will match your increased payments. A Financial Broker can go through this with you and advise on possible next steps.
How much should I be saving?
As a general rule of thumb you should be aiming for an income of between 50% and 66% of your final salary. However, everyone’s situation is different and it really depends on the type of lifestyle that you want in retirement, as well as on your own specific circumstances. One approach is to use your current income and outgoings as a starting point. Using a monthly bank statement plus any known annual outgoings you can add and remove costs that will be associated with your retirement years. For example, when you retire you may no longer have monthly mortgage repayments or have to pay for children’s education, but you may take more holidays or have higher medical expenses. This will give you a rough idea of the income you might need in retirement. A Financial Broker can look at your current pension plan and work with you to explore the amount you should be saving each month to meet your income needs in retirement.
I stopped saving into my pension plan, should I start saving again?
Many people who stopped paying into their pension plan during the recession have restarted their pension contributions. The reality is that the longer you leave it, the greater the impact will be as you will need to increase your pension contributions or lower your income expectations.
If I have worked in several companies can I move all of my pension savings into one plan?
In general you should be able to bring all of your pension savings together into one plan. However, there are conditions around moving your pension and it can depend on the type of pension arrangement you have versus what you want to transfer it into.
Generally, on leaving employment you have three main options depending on the circumstances. One would be to leave your benefits in your existing pension arrangement. Another could be to transfer your benefits to your new pension arrangement. Or you could take a refund of contributions but only in limited circumstances. You should make sure that you are fully aware of the implications of moving your pension savings before making any decision.
Whatever pension you have in place, don’t just hope it will be a sufficient income for you when the time comes to retire. Take a look at your pension today with an expert who will give you the cold hard facts and some good advice.
Ark Finance have been working with clients for over 11 years helping them plan for their future with investment and pension advice. We are independent financial advisors who have the most recent market information to help you make informed decisions about your future financial plan. Call us today to make an appointment to review your pension.