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Month: September 2017

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Why an early savings habit will set you up for the future

Pensions are like a marathon says Zurich’s Rose Leonard, if you want to do one you are going to have to start training now. The first mile is the hardest but once you have developed the habit, it gets easier.

The debate around the pension time bomb and the challenges facing the economy when it comes to pensions continues unabated. The biggest challenge is the changing demographics with people living longer. Life expectancy is increasing with men’s life expectancy up from 78 years of age in 2011 to 85 years in 2046. For women that number has jumped too, and females can now expect to live until at least 89 years as opposed to 82 in 2011*. Obviously this is great news, but are we considering the impact on the cost of supporting the retired population, and will the State pension sustain those in retirement for a longer period of time?

With increased life expectancy combined with forecasted birth rates expected to produce a doubling of the proportion of retired people to workers by 2050, a renewed focus on encouraging long-term savings is what is urgently required.

“Today there are about five people working for every one person retired. In less than 40 years’ time we will probably have about two people working for every one person retired,” Rose Leonard, head of distribution and customer relationship management at Zurich says.


Rose Leonard, head of distribution and customer relationship management at Zurich


Rose Leonard, head of distribution and customer relationship management at Zurich

This changing demographic will place a considerable financial burden on the State and tax payer. “Because people are living a lot longer they are going to need a lot more financial support in retirement, but they haven’t started to save earlier and we have to address that problem now,” she warns.
One of the main ways this problem can be addressed according to Leonard is for people to accept responsibility themselves and start saving earlier. “My advice to employees would be to join their pension scheme as early as possible. If an employer doesn’t provide a pension scheme, it would be worth considering starting a personal pension. People need to develop a habit of long-term savings really from their mid-20s.”

Communication & engagement

Leonard agrees that engaging people in the conversation around pensions can be another challenge. “It is true that a lot of people haven’t engaged in the conversation at all”, she says “and part of that might be because it’s a bit complicated.” According to Leonard, those that haven’t engaged tend to be younger, and people starting to show an interest in pensions when they reach the age of 50 is too late. “If you retire at 65 you could live for another 30 years so you need to be able to provide a replacement income for those 30 years in retirement. Starting to save long-term in your 20s is the best approach.”

For the millennial generation – who live very much in the here and now – why should they be planning now for their retirement many decades from now? “People in their 20s need to put time aside to understand the cost of pensions long-term and they need to develop a habit of long-term saving. It’s like running a marathon – you might say you would like to run a marathon in 2018, and if you do, you need to start training now,” Leonard explains.

Admittedly, most people don’t want to think about getting old and for the majority of people retirement is far from their minds. But the reality is that most people do grow old and live well into their old age and have a good long retirement. So encouraging people to think about how they can enjoy their life in retirement is key.

Leonard agrees that central to engagement is how pension providers break down the barrier and demystify the process. “In Zurich, we pride ourselves on communication. Our mantra when it comes to pension schemes is ‘communicate, communicate, communicate’. It’s important for companies like Zurich to keep our message clear and simple and I feel that’s something that we are very strong at.”

A universal system

There has been much discussion in Ireland around the introduction of auto enrolment, whereby a universal, workplace retirement saving system for workers without supplementary retirement provision, would be in place. Essentially, an automatic pension scheme would make it compulsory for employers to automatically enrol their eligible workers into a pension scheme.

“When we talk about auto enrolment the question is should we have a universal retirement scheme in Ireland whereby employers would automatically enrol their employees into this scheme,” Leonard asks? “The consensus among the government, the industry, and other bodies is that there should be a universal retirement scheme whereby members would be automatically enrolled.”

Leonard argues that those people in their 20s and 30s that don’t want to think about retirement would benefit from automatic enrolment, and it would encourage them to develop a habit of saving for the future. “We spoke earlier about whether or not the State pension will be sustainable, and when you consider that there are 17,000 new pensioners year-on-year, then it probably isn’t sustainable; something has to be done – we all have to accept responsibility for saving in the long-term.” A final piece of advice from Leonard for those thinking of starting a pension: “Start today,” she declares.


In order to help provide for your retirement, starting a pension is one of the smartest financial decisions you can make. When choosing a pension, having all the information you need is key. Sound advice is invaluable, so it’s a good idea to seek advice from a financial advisor. Talk to your company’s scheme advisor or an independent financial advisor who will guide you through the process and help you select the right pension plan for your circumstances. You can find a local financial advisor near you with the Zurich Advisor Finder. Alternatively, Zurich’s Financial Planning Team can provide you with more information about Zurich’s pension plans and options. For more information visit www.zurichlife.ie.

Reference: The Irish Times

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Planning to retire in style? Managing your income in retirement is key

As people live longer it’s more important than ever to take an active part in planning our retirement funds, says Pòl Ó Briain of Zurich

‘Getting financial advice is not the preserve of the wealthy’. Photograph: iStock

In our parents’ generation, retirees lucky enough to have a pension had little option but to use it to buy an annuity. This provided them with a guaranteed income for life. About the only decision to be made on retirement was what brand of watch to look for!
The advent of Approved Retirement Funds (ARFs) changed all that. A more flexible retirement option, they allow the retiree to remain invested during retirement, drawing down an income as and when they need it. The flipside, however, is that ARFs require ongoing financial decision-making throughout retirement.

“Annuities were very popular in the past, and indeed for some people they remain the preferred option,” says Pòl Ó Briain, head of retail products with life and pensions company Zurich.

Pòl Ó Briain, head of retail products with life and pensions company Zurich

Pòl Ó Briain, head of retail products with life and pensions company Zurich
However, the annuity rate – which, together with the amount of money you have accumulated in your pension fund, determines the fixed payment you receive each month in retirement – is set according to the prevailing interest rates. These have remained at historic lows for nearly a decade.

“As a result, annuities are increasingly perceived as not offering good value, particularly if you want to provide a pension for your spouse in the event of your death. You can quickly find that what looks like a very healthy pension fund at retirement may not provide you with as much annual income as you might have expected,” says Ó Briain.

On top of that, once an annuity is purchased there’s no transferring an annuity to your estate. “Plus, with an annuity, once you set it up, that’s it, there’s no going back,” he says.

With an ARF any money left in the fund after your death passes to your estate. On the downside you stand to lose out if the value of your investment falls.

Given that retirees typically see their income-generating capacity reduced, ARFs require a more active approach to managing investments.

And while an annuity may provide a lower income at outset than an ARF, it does at least have the advantage of providing that guaranteed income for life. With an ARF there is the risk of exhausting the pot of money due to poor management of withdrawals or poor investment performance.

As people live longer, they are going to need to take more action to ensure their funds last throughout their retirement. “You need to ensure you are investing your ARF in an appropriate way, taking into consideration your overall risk tolerance,” says Ó Briain.

It’s important to have regular reviews with a financial broker or advisor, to ensure you are managing your retirement funds in the most effective way

When annuities were the norm, the bulk of pension decisions were made as people approached the final years of their career. Traditionally, retirement savers would move from higher risk investments to lower risk options, de-risking in the years approaching retirement. It was seen as important to shield savings from market volatility before the purchase of an annuity.

Now however, if you decide an ARF is the better option for you, that de-risking strategy may need to change, to reflect the fact that you are going to remain invested post-retirement, possibly for decades.

Post retirement, ongoing decisions will be required. “It’s important to have regular reviews with a financial broker or advisor, to ensure you are managing your retirement funds in the most effective way,” he says.

Getting financial advice is not the preserve of the wealthy, nor are ARFs themselves, he points out. “There is still a misconception that ARFs were introduced for people with a lot of money, but that is not the case,” he says.

As people live longer in retirement generally, it’s more important than ever that they take an active approach to their retirement funds. “For example, if you have an ARF investment fund of €100,000 and you plan on taking €10,000 a year to live on, which might seem reasonable, it’s not going to last 20 years,” he says.

“You therefore have to figure out the best way to manage your money, being conscious both of your tolerance for risk and your capacity for loss, which is why having an advisor to assist you will become so important in retirement. After all, while you are still working in an organisation, you are likely to have all sorts of workplace supports to help as you approach retirement. When you are in retirement, you no longer have that support.”

Changes to an individual’s health and personal circumstances as they age will also require regular review. In some cases those who eschewed an annuity when they first retired may want to consider one at a later stage – especially as annuity rates increase with age. If so, the option of converting some or all of an ARF to an annuity may be worth exploring.

Managing ARFs throughout retirement is increasingly likely to be the norm.  As ever when it comes to retirement, the best advice is to take advice. “It is most certainly not something that should be done without proper guidance,” says Ó Briain.

Reference: The Irish Times

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Generation Rent: The importance of being earnest

Couple looking at a house

Generation Rent: The importance of being earnest


According to Savills 18% of people in Ireland now live in private rental accommodation, which is 497,111 households. With no real history of long-term letting or leases and the introduction of Rent Pressure Zones to try to slow down rent increases, the growing concern is how renters can protect themselves in this progressively volatile market.

A report from Goodbody Stockbrokers in May showed that the average price of a house is set to soar, escalating by 10% this year and by another 8pc by the end of 2018. In turn, more people are renting accommodation, with an earnest focus on saving to get onto the property ladder.

The rise of generation rent is evident but it is a culture that before now was not commonplace in Ireland. Traditionally, third level students aged 18-25 years and single people aged 20-35 years was the profile of renters. This profile has extended to include individuals and young families in their 30s, 40s and 50s. Other mainland European countries, such as Germany, have had a longer history with long-term renting, where accommodation leases are available for up to 10 years and subletting apartments to hold onto a lease is the norm. The introduction of longer rental leases here could be a solution by offering more security to renters and landlords, both benefitting from the longer-term arrangement.

According to daft.ie, our rented sector can be split into categories: ‘movers’ and ‘stayers’. One of the main reason people choose not to move regularly is if rents are rising rapidly in the market and there is a lack of availability, even if the accommodation they are in is not 100% suited to their needs. The former Minister for Housing Simon Coveney brought in Rent Pressure Zones (RPZs) in reaction to the increasing market rents, which came into effect in December 2016. This means that rent increases in these areas can be capped at 4% annually, and is seen as another reason why the amount of stayers has risen significantly.

Stated in the Daft.ie rent price report for Q1 of 2017: “Since 2013, market rents nationally have risen by just over 50%. However, sitting rents have increased by just 27%. In other words, those who have stayed in the same lease have enjoyed a discount relative to market rents, with rents increasing by just half the increase seen on the market.”

Sitting tenants now enjoy not only a discount relative to the market rent, but also protection of that lower rent into the future. Meanwhile, movers in the private rented sector face not only far higher rents but almost no availability in the market.”

Rent Pressure Zones

At a recent off-site strategy meeting with the now Minister for Housing Eamonn Murphy, it was suggested that a new city be formed in the midlands to help with the “choke” on Dublin. However, while the capital remains the most expensive place to rent, prices across the country have also seen increases but with varying degrees. Figures from Daft.ie, show that in Dublin, rents are now an average of 15.4% above their previous peak while in Cork and Galway cities, rents are 9.7% and 17.8% above levels recorded nine years ago. Outside the cities, the average rent is 3% above its previous peak.

In the three of the counties closest to Dublin – Meath, Kildare and Louth – rents have increased by more than 60% since 2012, which is to be expected considering a lot of people have turned to commuting from further distances in order to be able to find accommodation and affordable rent.

All three cities in Munster saw their rents increase by at least 10% in the year, as did Waterford, Cork and Clare counties. However, fewer than 800 homes were available to rent in Munster on May 1st, a decrease of almost 100 on the same date a year earlier. In fact, Ronan Lyons from Daft.ie reported that there were “fewer than 3,100 properties available to rent nationwide on May 1st compared to 4,000 three months previously.”

Getting protection

With a concerning fluctuation in the number of houses available, for sale or let, the importance of protection for generation rent is crucially important. The rental market is an added pressure in itself for renters, leaving them vulnerable in many ways. But how would they cope if, for example, they became ill and couldn’t pay the rent?

Renters like mortgage holders need similar protection and a life insurance policy could be used to offer that much-needed security. Zurich Life offers serious illness cover that enables you to gain assistance at a time when you need it most. If you have to stop work due to a serious illness diagnosis, this cover provides you with financial support that could cover your rent during your treatment.

Regardless of your living arrangements, a life insurance plan can be used to protect you and your family from financial strain should you become ill and are unable to provide for them. There is no reason why as renters, you can’t have similar financial protection to mortgage holders. To find out more about the right protection plan for you visit Zurich Life or speak to a financial broker.

Reference: ZurichLife

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Investing a lump sum: wait, drip feed or take the plunge?

New research shows waiting for a correction is often profitable but can prove costly

Overall, the potential costs associated with waiting greatly outweigh the benefits.
Overall, the potential costs associated with waiting greatly outweigh the benefits.

You have a decent pot of money earning next to nothing in the bank. Frustrated, you want to invest in a diversified portfolio, but you’re worried you might buy just before a sudden market drop. Should you wait for a correction? Should you drip feed your money over time? Or should you just invest all the money now, and be done with it?

Being nervous about investing a large amount of money is understandable, especially in the current environment.

Merrill Lynch’s August fund manager survey shows a record percentage believe global equities to be overvalued. Almost all valuation metrics indicate the US stock market – the largest in the world – to be overvalued relative to history. It could hardly be otherwise: the ongoing bull market is in its ninth year, making it the second-longest rally in history, and stocks have surged some 250 per cent over that period.

At the same time, caution can backfire. Legendary fund manager Peter Lynch once quipped that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”. Was Lynch right? Or is there a case for waiting out an expensive market?

Wait for correction?

Quantitative expert and Elm Partners founder Victor Haghani recently investigated, his curiosity piqued by a client who had some investable cash but who wanted to wait for a correction before putting it to work. Haghani was sceptical: although double-digit corrections are common, they may happen at a much higher price point, or take so long the investor loses patience and gets “pushed in” at a much higher level.

As it happens, Haghani found it is often profitable to wait. He looked at previous times where markets were expensive, defined as one standard deviation above their cyclically-adjusted price-earnings (Cape) ratio. In 56 per cent of cases, he found, stocks would have fallen 10 per cent below your entry price at some stage over the next three years.

However, waiting can also prove costly. In the 44 per cent of cases where the correction doesn’t happen, Haghani found, stocks went on to appreciate by about 30 per cent – much greater than the average amount you would have saved by waiting. Haghani ran a number of other tests, tweaking the criteria regarding time horizon and correction size. He found the longer you are prepared to wait for a correction to occur, or the bigger the correction for which you are waiting, the higher the average cost.

Overall, the potential costs associated with waiting greatly outweigh the benefits. If your plan is to wait for a lower entry point, be prepared to accept there’s a good chance it will cost you a fair amount of money.

Easing into stocks

What about the drip-feeding approach, whereby you gradually invest your money over a period of time? Euro-cost averaging (ECA) has an intuitive appeal, in that your money buys more shares when prices are low and less when prices are high. More often than not, however, stocks rise in value; doesn’t this mean that if you delay investing your money, you will miss out on some of the gains associated with investing?

Short answer: yes. A 2014 analysis conducted by New York-based Alliance Bernstein found that since 1926, stocks averaged annual gains of 12.2 per cent. If you’d invested your money over a 12-month period via fixed monthly instalments, however, average annual returns fall to 8.1 per cent.

“The costs were even higher in strong markets”, the firm added.

A recently updated Vanguard report, ‘Invest now or temporarily hold your cash?’, comes to the same conclusion. Vanguard looked at three national stock markets – the US, the UK and Australia – and examined the performance of a balanced portfolio consisting of 60 per cent equities, 40 per cent bonds. Investing immediately, as opposed to drip-feeding money over a 6- or 12-month period, led to better returns approximately two-thirds of the time.

The results were even worse if you averaged in over a three-year period: in such instances, investing immediately won out 92 per cent of the time. Vanguard also examined alternative asset allocations – for example, 100 per cent equities, 100 per cent bonds or a 50:50 stock-bonds portfolio – but the results were essentially unchanged.

Clearly, averaging into investments over time typically hurts returns, but advocates argue it can lower risk, protecting cautious investors in the occasional instances when markets stumble. One overlooked danger, however, is that averaging into an expensive stock market can backfire, resulting in more shares being purchased closer to a market top.

Many strategists argue stocks are in the late-cycle phase of the bull market, but this phase can last a long time. Furthermore, recession risk appears minimal at the moment and almost none of the traditional bear market indicators are present, according to Citibank’s global bear market checklist. Accordingly, investors need to be alive to the danger that the ECA approach will result in them buying shares at successively higher prices over time, closer to the eventual market peak.

Still, easing one’s money into the market beats the lump sum approach in almost one-third of cases, according to Vanguard’s study. Occasionally, in very poor markets, the savings involved are substantial. However, Alliance Bernstein’s research shows the results are asymmetrical – although ECA can save you money in poor markets, it tends to cost you a lot more in strong markets.

Overall, then, the slowly-does-it approach to investing typically hurts returns. It will save you money on occasions, but not as much as it will cost you when markets are strong.

ECA holds psychological but not economic appeal, although that doesn’t mean the strategy is without merit. Behavioural economists have shown that for investors, the pain of a euro lost is roughly twice as great as the joy of a euro gained. This loss aversion means the mere prospect – however remote – of buying just before a sharp fall is likely to give would-be investors sleepless nights. Drip-feeding into investments over time eases this tension, and gradually gaining investment exposure will always be preferable to no exposure at all.

World’s worst timer

Finally, it’s worth remembering that even if you do invest a lump sum immediately before a big market decline, time is on the side of long-term investors. In his 2015 book A Wealth of Common Sense, Ben Carlson details the case of a fictional investor, Bob, who invested only at market peaks. Bob invested $6,000 at the market top in 1972, just before stocks halved in 1973-74. He didn’t sell and invested another $46,000 in savings in October 1987; within months, stocks tanked 34 per cent. Again, he didn’t sell, and invested another $68,000 in late 1999. The dotcom bubble then burst; by late 2002, stocks had halved. Undaunted, he held on and invested another $64,000 in October 2007, just before the biggest crash since the 1930s depression.

Bob may have been “the world’s worst market timer”, but he did okay; by 2015, his total investment of $184,000 was worth $1.1 million. It may be the stuff of nightmares but there are, it seems, worse things than investing at market peaks.

Reference: The Irish Times