8 Dos and Don’ts For Planning Your Pension
How much do you really know about your pension? Where or how it’s being invested, how many pension pots you’ve accumulated from previous employers, or when you’re eligible to withdraw a lump sum?
They say that planning is bringing the future into the present, and that’s exactly how effective pension planning works. Whether you’ve just started been contributing to an occupational pension scheme, or spent decades adding to multiple pension pots, it’s important to take note of some of the major dos and don’ts for planning your retirement goals.
1 – DON’T wait for the right time to start your pension
If you’re waiting for the perfect time to start your pension, the likelihood is that it’s never going to come! The right time to start a pension is when your working life begins, but second to that is right now. Remember that the State pension in Ireland is currently €284.30 per week for those aged 66 and older. Your circumstances will inevitably change many times over the course of your career, so even if you aren’t in a position to contribute a significant figure every month, any amount will ultimately be helping you to reach your retirement goals. This brings us to our next point…
2 – DO draw on the expertise of professionals
While it’s undoubtedly better to regularly contribute something to your pension than nothing at all, we cannot stress enough how important it is to actively plan for your retirement. Generally speaking, your pension income should be half of your gross retirement income. So if you are earning €100,000 per annum in the lead up to your retirement, your pension income should ideally be €50,000. Your savings need to align with these goals, keeping factors such as the State pension and your potential retirement age in mind, as well as your own personal circumstances – e.g. mortgage repayments, private education for children, etc. A qualified financial advisor will help you to plan out your pension by looking at your situation, your attitude towards risk, and give impartial advice on the possible pension strategies that work best for you.
3 – DON’T lose track of your pension status
A ‘set it and forget it’ attitude to your pension means that you might be missing out on opportunities to grow your pension fund as your income changes over time. So keeping stock of your pension status on a yearly basis is vital. Make sure that your address is up to date with any and all of your pension providers so that you are receiving your personal benefit statements. Are you on track to reaching your pension goals? Does anything need to be tweaked? Could your
benefits be improved? These are all questions that you should be asking yourself regularly.
4 – DON’T let the market influence you too much
It’s only normal to have concerns about the state of your pension when there are slumps in the market, but in times of uncertainty, people often make rash decisions. Your pension is essentially a long-term investment, and with that will come multiple peaks and troughs in the market. The best thing you can do if you have concerns over your pension is not to panic and speak to your financial advisor, who will be able to look at your individual situation – whether
you’re just a year or two away from retiring, or still a couple of decades. Generally speaking, time in the market trumps timing the market, so sticking with your original strategy often serves you much better than making hasty changes or bowing out altogether.
5 – DO know your pension tax entitlements
Did you know that you can make a once-off pension contribution after the end of a tax year and receive tax relief on contributions allowed in the earlier tax year? Similarly, are you aware of what age you need to be in order to take a tax-free lump sum from your pension pot? You may be eligible for more tax entitlements than you know, so it’s important to educate yourself or look for advice from a financial advisor to get information on tax relief bands based on your age and pension contributions. If there are savings to be made, you should be absolutely going after them!
6 – DON’T have multiple pots if they aren’t performing for you
Unless you’ve stayed with one employer during your time in the workforce, the chances are that you have multiple pension pots – likely with different providers and varying schemes and terms. It’s all well and good if these pots are continuing to perform for you, but as a deferred member
of a scheme, you may no longer be eligible for the benefits you once had, and often lose touch with the trustees over time.
Having your pension pots under one roof gives you more visibility and control over your total pension fund, which may make more sense for you in the long run. For more information on pension types and transfers, click here.
7 – DO consider your pensions from overseas
Have you worked in the UK at some point in your career, but now you’re back in Ireland permanently? Just as with pensions from previous employers, there’s little point in leaving it to sit there if it’s dormant. Instead, it is worthwhile to look into a qualifying recognised overseas pension scheme (QROPS), which is a product that allows for pension transfers from the UK without a potential tax implication. There are many QROPS providers on the market so it’s wise to work with a financial advisor to ensure that you’re choosing the right one, as well as that all legalities are adhered to.
8 – DO make your pension part of your overall financial plan
Your pension is just one element of your overall financial wellness strategy. While your pension falls under your long-term goals, you should also be working towards your short and medium- term objectives. Taking a proactive approach to your finances will not only hugely improve your day-to-day money management, but you’ll be safe in the knowledge that you’re on track for the future, including any of those unexpected situations that life throws at you.
Ready to take control of your pension? Contact us for a free 15-minute consultation with one of our financial advisors today!