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Aged 50 or over? Consider your retirement fund options now

If you haven’t yet thought about what to do with your retirement fund, here’s some advice

Source: Fiona Reddin, www.irishtimes.com

 

If you’re 50 years or over, and haven’t yet started to think about what you’re going to do with your retirement fund when you become a pensioner, it’s time to knuckle down and consider your options.

At present, if you’re currently enrolled in a defined contribution (DC) scheme, your two big options heading into retirement are going to be either an annuity, or an approved retirement fund (ARF). But both are very different, and both require different planning strategies in the years leading up to retirement.

So, if you’re aged 50 or over, it’s time to get planning.

As Trevor Booth, chief executive of Mercer Financial Services, advises, “The more informed you are, the better the quality of the decisions you’re going to make.” And when you consider it’s about ensuring you don’t end up penurious in retirement, the quality of your decision-making is crucial.

 

Annuity v ARF

In years gone by, pension savers would generally find themselves in a defined benefit (DB), or final salary, scheme, of which an annuity was an essential part. Essentially, your employer guaranteed a set level of retirement income as a proportion of your final working earnings – generally two-thirds, for those with full benefits.

The advantage of annuities is that they offer a guaranteed income until you die, and sometimes even after, with some products offering spousal income. You can also provide for inflation-proofing, at a cost. So there’s no fear of your pension fund bottoming out with an annuity, and this guaranteed income offers peace of mind.

What we’ve been seeing across the board is a move away from annuities to ARFs

However, the problem for many people who are now coming to retirement is that they aren’t coming with the bounty offered by a DB scheme. DB schemes are a vanishing species, at least in the private sector, as the cost of providing them – and accounting for the liability on their books – proved too onerous for companies. DC schemes are now the norm.

In addition, current annuity rates mean that a lifetime of savings can equate to a less-than-expected income in retirement.

“What we’ve been seeing across the board is a move away from annuities to ARFs,” says Cian Hurley, a senior consultant in Willis Towers Watson’s investment practice, because “annuities are quite poor value at the moment”.

Booth agrees, noting that about two in three retirees will now opt for an ARF over an annuity. These with larger pension funds tend to go for an ARF, while those with smaller funds choose an annuity.

Current annuity rates are about 4-5 per cent, depending on your age. For example, a 61-year-old might get a rate of 4.179 per cent with Irish Life; but this rate could increase if you have a history of poor health and qualify for an enhanced annuity.

With such rates, however, Booth notes that someone retiring at 65 will have to wait 23 years, or until they’re 88, to get all their capital back from an annuity. Not only that, but he says that statistics show that a 65-year old has just a one in two chance of getting all their money back by living that long.

If you want to inflation-proof the annuity income or provide for a spouse, the rate on offer would be noticeably lower and the time to recover your capital even longer.

“There will be winners and losers on it [an annuity],” he says.

An ARF, on the other hand, can give you substantially more flexibility. In effect, this brings your pension fund with you into retirement, once you draw down your tax-free lump-sum.

 

When you die, it can be passed tax-free to your spouse, or to your children – although tax issues will arise for them.

It means that you can continue to grow your capital, as you are still exposed to market movements, although there is a mandatory draw-down, of 4 per cent a year if you are 60 years or over, increasing to 5 per cent at 70, or 6 per cent if you have pension assets of €2 million or more and are over 60 years of age for the full tax year.

But – and it’s quite a big but – ARFs also face the risk of running out of money. Depending on how much is in your ARF, if the return on your ARF after charges fails to match your draw-down rate (ie 4-6 per cent a year), the capital will reduce each year, eventually potentially running out. This can also be hastened if the investments perform poorly.

“What also comes into play is longevity risk,” says Hurley. Should you stay alive for a very long time, it will put more pressure on your funds should you opt for an ARF.

 

ARF then annuity?

Remember, your decision doesn’t have to be final at retirement. There’s nothing to stop you from going into an ARF at retirement, and then switching to an annuity at a later date. However, according to Booth, “it’s very rare that we see this.” Rather, “people feel intuitively that one route or another works best for them.”

And there may be a reason why. Due to “mortality drag”, someone aged 75 might be expected to live longer than the 88 years that was predicted when they were 65; and this means they will get a lower annuity rate at 75 than they might have expected.

For this approach to make sense, Booth says that you’ll need to either:

  1. a) generate a return on your ARF, or;
  2. b) hope that annuity costs will fall and you get a higher rate.

At the moment, there is no hybrid product between the two, but “perhaps that’s something we need to look at”, says Hurley.

 

 

The tax question

Whether you opt for an ARF or an annuity might also be a factor of how much of a tax-free lump sum you can get. Under current rules, if you opt for an ARF, you can immediately draw down 25 per cent of your pension fund tax-free. If you opt for an annuity, however, your maximum lump sum will be 1.5 times your final salary.

So, if you retire with a pension fund worth €450,000, you will be able to draw down €112,500 tax-free with an ARF. If you were on a final salary of €100,000, you will be able to get €150,000 tax-free if you opt for an annuity, although it should be noted that the rules on 1.5 times salary are a bit more complicated than this, and not everyone may get the full amount.

So this is also an important consideration.

“Generally, if the retirement fund is small, 1.5 times your earnings is likely to be more attractive, and you’ll buy an annuity with the remainder,” says Shane O’Farrell, head of products, Irish Life Corporate Business.

But more flexibility is still called for. Booth and others in the industry would like to see the rules loosened on this, so that people opting for the 1.5-times salary option are also given the option to buy an ARF.

 

Lifestyling shift

Another reason why it is important to start thinking about these issues many years from retirement is that your DC fund manager will likely be positioning you towards a certain outcome if you are in a default fund – which is where the vast majority of people are likely to be.

The goal of lifestyling is to make sure that members are in the right type of fund at the right time – for instance to avoid a situation where someone with a year to retirement is not 100 per cent invested in equities and therefore extremely exposed to a potential drop in markets.

The benefit of a lifestyling strategy is that it “takes out having to make active decisions about when and where to invest your assets”, says Hurley. It is aimed typically at members in a scheme who opt for the default option.

However, you need to make sure it matches your end goal. For example, there’s no point in switching your portfolio to bonds – which will match an annuity – if you want to stay invested in an ARF at retirement.

Given the shift in preference to ARFs, fund managers have started to adapt their lifestyling strategies in recent years.

Pension savers in New Ireland’s Individual Retirement Investment Strategy, for example, used to transition portfolios to 75 per cent in “long bonds” and 25 per cent in cash at retirement. Now, however, aware of the preferences for ARFs, savers will end up with 75 per cent in low- to medium-risk assets at retirement, and 25 per cent cash.

Similarly, Irish Life has moved to adapt its lifestyling approach. O’Farrell explains that funds will now have longer to grow, as the de-risking phase has been cut from 20 years to 11 years before retirement. This reflects the use of a multi-asset range of funds which it now offers pension savers, that have lower volatility and greater diversification than the equity heavy pension funds of old.

In the last six years before retirement, Irish Life will assess your most likely benefit route at retirement and place you in either an annuity targeting fund (where the multiple of salary route gives the highest tax-free lump sum) or into an ARF targeting fund (where 25 per cent of the retirement savings will give the highest tax-free lump sum).

If you want to retire early, at 60, then your lifestyle strategy may have more risk than it should

“Of course, people can also make their own active decision and select another investment option, but very few do,” says O’Farrell. But for some people, making their own decisions, rather than the default one, will be crucial.

“What’s suitable for majority may not be suitable for you,” says Booth, while Hurley adds that lifestyling can be a “pretty blunt instrument by its very nature, because it doesn’t really take into account members’ unique circumstances”.

“Where they don’t work, is where people want to retire early, and want to take more risk or less risk,” he says, adding, “if you want to retire early, at 60, then your lifestyle strategy may have more risk than it should.”

 

When to decide?

For Hurley, you should be meeting your pensions adviser about 10 years out from your proposed retirement date to discuss how you expect you’ll take your benefits in retirement.

Booth agrees, adding that factors to think about include understanding what average life expectancy is , how long will it take to get the capital back, and what your current health state is.

And when it comes to picking a product, do shop around. Remember, you have the right to purchase an annuity or ARF from any provider – not just your current pension provider.

 

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Funky Shirt Friday!

Staff at IPF raised money for the Peter McVerry Trust on Friday by holding Funky Shirt Friday in our offices!

Many thanks to everyone who contributed!

 

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Minister confirms payment rise for 23,000 pensioners who took career break to look after loved ones

More than 23,000 pensioners who had their pensions reduced after taking a career break to care for loved ones have had their retirement payments increased, the Irish Examiner can reveal.

Social Protection Minister Regina Doherty has confirmed that since the controversy erupted in the wake of the Budget 2018 a major review has been undertaken with over 90,000 cases examined.

Ms Doherty has said that her department has examined the social insurance records of approximately 90,000 pensioners, born on or after 1 September 1946, who had a reduced rate State pension contributory entitlement based on post Budget 2012 rate-bands.

The minister said these payments are being reviewed under a new Total Contributions Approach (TCA) to pension calculation which includes provision for home caring periods.

Ms Doherty has confirmed that, as of last week, 47,755 reviews – which is over half of all pensioners identified for review – have been completed.

Of these, 23,523 pensioners received an increase in their rate of weekly rate of pension and 24,232 are remaining on their existing rate of payment, she said.

Based on a sample analysis of some of the increases awarded, the best estimate at this stage is that 13% of those who received an increase received a weekly increase of €30 or more; 36% received a weekly increase of between €20 and €30; 7% received an increase of between €10 and €20; with the highest proportion, 44%, receiving an increase of up to €10 per week.

“Importantly, most of those who received less than €10 following their review achieved maximum personal contributory pension rate, which cannot be further improved upon,” Ms Doherty said.

The Irish Examiner has learnt that reviews commenced from 13 February 2019, the day after she signed the necessary Regulations which, together with provisions in the Social Welfare, Pensions and Civil Registrations Act 2018, allows the increased payments to be made.

Regardless of when a review is conducted, where an increase in payment is due, the person’s rate of payment is adjusted without delay and arrears paid, backdated to 30 March 2018 or the person’s 66th birthday if later, the minister confirmed.

Where a person’s rate does not increase following review, the person will continue to receive their existing rate of payment.

Regina Doherty

The Government will have to find €55m next year to cover the cost of fixing the 2012 pensions anomaly relating to carers who took time out of their careers.

On foot of the controversy, the Government decided to allow State pension (contributory) recipients affected by the 2012 changes in rate bands to have their pensions entitlement calculated on a total contributions approach basis.

The changes included a provision for up to 20 years of a new “HomeCaring credit”. This would benefit people whose work history includes an extended period of time outside the paid workforce, raising families, or in a full-time caring role.

According to the report, reviews will commence in the final quarter of this year, with the first payments being made in the first quarter of 2019. It is estimated the full-year cost will be in the region of €35m.

“Backdating to March 2018 will cost an estimated €20m, resulting in a 2019 cost estimated at some €55m. This is not currently included in the [department’s] 2019 ceiling,” the report said.

by Daniel McConnell

Political Editor

Reference: www.irishexaminer.com

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Everything you need to know about health & life insurance: Part 1

Many people seem to distrust both life insurance and the people who sell it. Why should this be? I’m sure it is partly because no one likes to think about anything bad happening to them, and partly because – in order to draw attention to a very real need – life insurance salespeople are forced to bring up uncomfortable subjects with their prospective clients.

However, although it is not something you may rush to tackle, making certain that you have adequate life – and health – insurance will bring you genuine peace of mind.

First-class medical protection, critical or serious illness cover and life insurance are available at a remarkably low price providing you know how to buy it but you must:

  •  Make sure you are not sold protection you don’t need
  •  Decide what cover is sensible for you to take out
  •  Find out who you can trust to advise you
  •  Make sure you get your cover at the lowest possible price

You know you should…
It isn’t pleasant to dwell on being ill, having an accident or – worst of all – dying. Nevertheless, you owe it to yourself – and those you care for – to spend a little time making sure you are protected should the worst happen. This means being:

  • protected by income protection, also called PHI (permanent health insurance) if you are too unwell to earn an income
  • protected by private medical insurance if you need medical attention
  • protected by life cover if you, or your partner, should die.

There are, of course, plenty of facts and figures available proving just how likely it is for someone of any age to fall ill or die. Sadly, such statistics are borne out by everyone’s personal experience. The truth is we all know of instances where families have had to face poor medical care and/or financial hardship as the result of a tragedy. We all know, too, that spending the small sum required to purchase appropriate cover makes sound sense.

Spend time, not money
The secret is to identify exactly what cover you really need and not to get sold an inappropriate or overpriced policy. It is also important to review your needs on a regular basis. What you require today, and what you’ll require in even two or three years’ time could alter dramatically.

The best way to start is by considering what risks you face and deciding what action you should take. Here are three questions that everyone should ask themselves, regardless of their age, gender, health or financial circumstances.

Question 1: What would your financial position be if you were unable to work – due to an accident or illness – for more than a short period of time?

Obviously, your employer and the state will both be obliged to help you out. However, if you have a mortgage, other debts and/or a family to support your legal entitlements are unlikely to meet anything like your normal monthly outgoings. If you do have a family then your spouse will have to balance work, caring for you and – possibly – caring for children. Is this feasible or – more to the point – desirable? How long will your savings last you under these circumstances? Do you have other assets you could sell?

Unless you have substantial savings and/or low outgoings then income protection cover and/or critical/serious illness insurance could both make sound sense.

Question 2: Do you have anyone dependent on you for either financial support or care? Are you dependent on someone else financially? Do you have children – or other family members – who would have to be cared for if you were to die?

If you are single and don’t have any dependents then the reason to take out life insurance is in order to settle any debts and/or leave a bequest. If, on the other hand, there is someone depending on you – either for money or for care – then life cover has to be a priority.
If you are supporting anyone (or if your financial contribution is necessary to the running of your household) then you need to take out cover so that you don’t leave those you love facing a financial crisis.
If you are caring for anyone – children, perhaps, or an ageing relative – then you should take out cover so that there is plenty of money for someone else to take over this role.

Question 3: Does it matter to you how quickly you receive non-urgent medical treatment? If you need medical care would you rather choose who looks after you, where you are treated and in what circumstances? How important is a private room in hospital to you?

We are fortunate enough to enjoy free basic health care in Ireland. However, if you are self-employed or if you have responsibilities which mean that it is important for you to be able to choose the time and place of any medical treatment, then you should consider private medical insurance.

Reference: www.rte.ie

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Less than half of all employees have a private pension – CSO

Less than 20% of young people were contributing to a pension, compared to more than 70% of those aged 45-54

Less than half of all employees in Ireland were saving towards a pension last year, according to the Central Statistics Office.

Its survey of pension coverage in the third quarter of 2018 found that 47.1% of all people in employment were contributing towards a private pension.

That is up 0.4 percentage points on the same period of 2015.

When pension coverage from previous employments, as well as deferred pensions and pensions in draw-down mode, are included the ratio of those covered rose to 56.3%.

The CSO found that just 16.3% of people aged 20-24 were contributing to a pension, compared to almost 71% of workers aged 45-54.

Meanwhile the data shows that more than half of all self-employed people had pension coverage.

The Irish Congress of Trade Unions said the figures highlighted the need for pension auto-enrolment as part of a wider reform of the system in Ireland.

“Tax relief has failed as a policy instrument for encouraging low and middle-income earners to save enough towards a financially secure retirement, and there is no legal obligation on an employer to provide or contribute to a pension scheme for employees,” said ICTU’s social policy officer Dr Laura Bambrick.

“As the State pension is paid at a flat-rate, rather than earnings-related, workers without retirement savings are exposed to a significant drop in their living standards in old age.”

Reference: www.rte.ie

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4th Annual Football Tournament in aid of St Michael’s House

IPF’s 4th Annual Football Tournament in aid of St Michael’s House took place on Friday 29th March 2019.

Many thanks to all who took park; New Ireland Assurance, Zurich, Aviva, Irish Life, and the winners on the day, Goodbody!

Well done to all involved!

  

   

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Mind the pension gap

LACK OF PENSION PROVISIONS AMONGST YOUNG WOMEN SIGNALS FUTURE OF FINANCIAL DISEMPOWERMENT

  • 63% of women admit to having no pension provision
  • 55% of women have never considered a pension
  • Men are more proactive and confident than women about their retirement income
  • Insights point to a pension pay gap of (10%) for future female retirees

25 February 2019: According to a new survey commissioned by leading Pensions provider, Aviva, planning for retirement is way down the priority list for women in Ireland, with only (6%) of women surveyed perceiving it as being a high priority. The Behaviour & Attitudes Survey* of over 1,000 adults nationwide reveals that over 6 in 10 (63%) of women surveyed said they do not have a private pension with over half (55%) of these women admitting they had never considered putting one in place. Almost half (47%) of men cited having a pension, compared with only (37%) of women, which represents a pension pay gap of (10%) and could point to a future of financial disempowerment amongst future female retirees.

When asked about the prospect of auto-enrolment, over 2 in 5 (43%) men were aware of the Government’s plans, when compared to 1 in 3 (33%) of women. A larger cohort of men (64%) were also found to be in favour of auto-enrolment in comparison with (58%) of women surveyed. When asked about security of their future retirement income, almost 2 in 3 (59%) men indicated a higher level of confidence when compared to only 2 in 5 (40%) women, suggesting greater levels of concern amongst females when it comes to pension provisions.

Ann O’Keeffe, Head of Individual Life and Pensions, Aviva, said of the findings: “Having conducted this same survey for the last 4 years we have found that, worryingly, pension coverage for women has remained largely stagnant at (37%) since 2014. While the participation rates for both genders are far too low – the case for women is particularly concerning. Saving for retirement doesn’t appear to be high on people’s agenda.”

While insights demonstrate a disparity across genders when it comes to retirement provision, unsurprisingly, age too plays a significant role. The research shows young workers aged 25-34 as being the age group least likely to have a pension (30%) when compared with (54%) of 35-44-year olds and (43%) of 45-55-year olds, which suggests a pension is not a focus for most people in their 20s and 30s, limiting their potential contribution period.

On this, Ms. O’Keeffe commented:
Of those under 35 without a pension, almost 2 in 3 (58%) say they simply have never thought about it. The survey paints a clear picture of a highly optimistic generation in their financial well-being when they can no longer earn an income While it is understandable that retirement provisions might be the last thing on people’s minds, particularly for younger people, in actual fact it’s one of the most important financial decisions a person can make during their working life.”

“Thankfully, we are all living longer, more active lives and our good fortune in this respect should not become a financial burden. That is why we need to ensure that women – as well as men – across all age groups understand the benefits of financial planning as early as possible in their careers.”

Aviva customers and consumers alike are invited to visit www.mindthepensiongap.ie to avail of its free online pension calculator and for more information on a range of bespoke retirement savings plans.

 

Reference: www.aviva.ie

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7 reasons why home insurance should be your top priority

Here are a few reasons as to why home insurance is a must-have thing and how it can help one to avoid a huge financial setback in the event of any mishap.

When you buy home insurance online or offline, make sure you opt for the policy offering the best cover.

A home is not merely a structure made of cement and bricks, it is a space filled with emotions. People earn for their lifetime and give everything to build a place where they could live comfortably with their family.

You gave your all to have a home of your own, but do you have any backup plan to protect the same?

There are few things which we as a human do not have control over, and to protect the ‘humble abode’ that you have instituted with the years of constant dedication and hard work, home insurance should be your top priority.

However, the irony is, people see it as an unwanted expense, but in fact, it is not. Let us check out some legitimate reasons as to why house or home insurance is a must-have thing and how it can help you avoid a huge financial setback in the event of any mishap.

1. Natural Disasters

As mentioned earlier, there are few things which are beyond our control, and natural disasters aka “Acts of God” are one of them. It can strike anytime, and anywhere. Remember the recent floods of Kerala, Uttarakhand and Mumbai that affected millions of lives with deaths, injuries, and destroyed homes. People witnessed houses and assets getting destroyed in front of their eyes and had to use their hard-earned savings to rebuild homes. It was a traumatic and emotional experience for them.

Therefore, to protect yourself and your family against “Acts of God” such as landslides, floods, earthquakes, cyclones, etc., it is important for you to buy a home insurance plan.

2. Man-made Disasters

No doubt we live in a technology dominating society where we have the latest and fanciest of safety measures, such as CCTV security and gated communities, but we cannot rely on them completely for our security, can we?

Man-made disasters such as riots, strikes, robberies, terrorism, thefts, etc., are a real risk and still prevalent. And this makes for a strong reason for you to have a proper home insurance plan. However, some insurers may not cover for the losses due to all these risks, but you can ask them for extra protection in the form of riders.

3. Protection for the Contents Within

Home insurance not just covers your house, but also the contents within. Things like electronics, furniture, jewelry, light fixtures, antique items, valuable home appliances, etc., are also covered under a home insurance policy. However, the scope of coverage might vary as per your preferences. In case of any damage or theft, you will get compensation for the same or even get them replaced with the new ones. So when choosing a home insurance plan, you can actually opt for the things that you want to get cover for along with your home insurance.

4. Not Expensive

For many, home insurance may seem like an unnecessary expense but a few know that it comes at a fairly low premium rates, which may be cost lesser than a rupee per day. And in return, home insurance buyers get significant benefits. Further, you get the flexibility to increase or decrease the premium amount as per your affordability by simply adding or removing the items to be insured under the policy.

5. Protection against Lawsuits

What if you incidentally damage someone else’s property owing to the spread of fire? You will be in a legal hassle. But, home insurance can save you from such hassles by covering the cost for the damage caused to another property due to any incident. Not only this, it also covers the cost for the medical expenses of the visitor or guest injured in your property during that event.

6. Coverage for Rent

If in case you experience a loss due to fire perils, and it makes your home inhabitable, be it owing to natural disaster or manmade circumstance, you may have to find a temporary accommodation until your home gets reconstructed. In that case, your insurer pays for your rent. So, being a responsible individual, it is always wise to be prepared for the worst, and home insurance ensures financial support in such situations.

7. Peace of Mind

You cannot deny the fact that for most people, home insurance actually sounds like a certain expense for an uncertain reason. However, the peace of mind offered by home insurance is more than anything that money can actually buy for you.

So, it does not matter whether you own a villa or an apartment, once you buy home insurance for it, you get the luxury of peace of mind because you know that you are prepared for the worse.

Buying home insurance is indeed a proactive step you take to protect your home from unforeseen dangers. It signifies what extent you can go to protect your home. Moreover, home insurance is the right policy to provide protection from uncertainties not only to homeowners but to tenants as well. However, when you buy home insurance online or offline, make sure you opt for the policy offering the best cover.

(By Subrata Mondal, Executive Vice President at IFFCO Tokio General Insurance Company )

Reference: www.financialexpress.com

Date: 18/02/2019

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Retirement Planning Seminar 21/09/2018, Westbury Hotel, Dublin

Many thanks to all who attended our recent Retirement Planning Seminar in the Westbury Hotel and to our panel of speakers who provided useful information on the night.

To date, IPF have held 20 Seminars around the country for Public Sector employees.  We have had over 2,000 attendees in total to these seminars.

These events prove to massively popular and are always oversubscribed.

Our next Seminar will be in The Kingsley Hotel in Cork City on the 5th October 2018. Those interested in attending should book their places as soon as possible through sarah.connolly@ipf.ie.

 

Here is the usual agenda for the seminar:

“Retirement Planning and how your benefits work”  Claire Hanrahan, Financial Advisor

“Keeping Safe in Retirement” Sgt. Dean Kerins, Crime Prevention Officer, An Garda Siochana

“General medical guidelines for over 60’s”  Dr. Rita Galimberti, Consultant, Femplus Womens Health Clinic

“Taxation; Essential information for you pre and post retirement”  Ray McGovern, Chartered Accountant, McGovern & Associates

“Investing in a Challenging World” Stephen Dixon, New Ireland Assurance

“Active Retirement and managing your newfound free time”  Pat Murphy, Planning Consultant, Retirement & Life Planning