What can you do to protect your income in retirement?

Mark Solon suggests that health managers can be proactive in making their own retirement arrangements – whether through additional voluntary pension provision, savings and investments  – or by adjusting their expectations of when they plan to retire and the type of retirement they want to have.

Mark Solon, Manager, Health & Welfare Division, Cornmarket
Mark Solon, Manager, Health & Welfare Division, Cornmarket

The Pension landscape is changing drastically. In 2011 there were almost 750,000 people in Ireland over 60 years of age. According to the CSO Population Projections this will grow to almost 1,000,000 by 2021*. This ageing population is also living longer. In the USA, for example, if a couple both retire at 65 there is a 50% chance one will live beyond 90 years of age and, as a result, the amount of money required for longer retirements (health care expenses, nursing home costs) increases**.

Due to the substantial increase in our older population we will have less of a working population to help fund costs associated with retirement. For example, in 1990 we had five workers for every retiree. This is estimated to be less than two workers for every retiree by 2050 – in other words every couple will in effect be supporting one pensioner**!

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So what is being done?

Defined benefit pension schemes are struggling in all sectors. Most company pension schemes are now defined contribution, which are much less onerous on the employer.

They are also moving the age when you will receive the State Pension from 66 in 2014, to 67 in 2021 and to 68 in 2028.

In the public sector the defined benefit schemes have been amended twice in the last ten years for new entrants and many early retirement options have been removed. The normal retirement ages have been moved from 55-60 to 65-68 and the benefits accrued may be less than if one had joined the public sector prior to  April 1, 2004.

The Government has also made changes. The Pension Reserve Fund has been used to help tackle the recession and they have made changes to the State Pension arrangements. As well as removing the State Transition Pension from 2014 which was previously payable from age 65 once you were retired, they are also moving the age when you will receive the State Pension from 66 in 2014, to 67 in 2021 and to 68 in 2028. How they calculate the benefits are also being amended.

What can you do to protect your income in retirement?

All of the above changes are out of our control. We cannot change a government or an employer’s decision. We can, however, be proactive in making our own retirement arrangements – whether through additional voluntary pension provision, savings and investments or by adjusting our expectations of when we plan to retire and the type of retirement we want to have.

As a member of a Public Sector defined benefit scheme, you can make pension provision by either buying additional years from your employer (notional service purchase) or by making contributions to an Additional Voluntary Contribution scheme (AVC) or a Personal Retirement Savings Account written as an AVC (PRSA AVC). Some employees may also have the option to buy back non-superannuated service or refunded service.

Regardless of which path you choose, these options all attract tax relief at one’s marginal rate of tax. However, it is important that you seek advice as to which option is right for you.

Mark Solon
Manager, Health & Welfare Division, Cornmarket.
https://www.cornmarket.ie

 

To make a complimentary appointment with a pensions expert, please contact Cornmarket on (01) 408 4025.

Sources: *Central Statistics Office population projections, 2016 – 2021. **The Economist, 07.04.11. Cornmarket Group Financial Services Ltd. is regulated by the Central Bank of Ireland. A member of the Irish Life Group Ltd. Telephone calls may be recorded for quality control and training purposes.