A solid financial foundation is as essential in life as in business – supporting the present, but also securing the future. Today, we’re exploring a crucial pillar of this financial planning: pensions. According to recent studies, only one in three Irish people are happy that their retirement income will be sufficient, proving that not enough of us have taken the action we need.
This blog is based on a conversation I had with David Walls, Head of Investment Sales at Zurich, which you can watch in full below. I hope this blog will demystify the process and demonstrate the importance of pension planning for both business owners and their employees. Beyond is a pensions advisor, and we’ll be happy to have a conversation with you about pension provision for the people in your business.
Will your pension pot give you the retirement you want?
The point of pensions is, of course, to provide a financial safety net for the future. Pensions can appear complex or confusing, but this is often just down to the way organisations describe financial products in general. A lot of the language used exists because of regulatory standards, legal requirements, industry jargon, or technical language. The result tends to be consumer inertia, but in reality there’s nothing particularly difficult about getting started.
Pensions aren’t as complex as you may fear. In Ireland, pension planning is a tax-efficient method to put something by for your future. If your business is profitable, you can build a substantial nest egg, because contributions aren’t just tax-free for the company but also offer significant tax reliefs for the individual. Once you reach retirement, portions of the pension can be withdrawn tax-free, providing a stream of income that complements other financial assets you might have, such as the proceeds of selling property or the business itself.
Are you hoping your company will be your pension?
In the past, many business owners operated under the assumption that their business would be their pension. This may well have been the case a couple of generations ago, but business is a lot more unpredictable today. Markets fluctuate, industries evolve, and what looks like a stable enterprise today might face challenges tomorrow. We’ve also seen how the value of service companies has dropped substantially, falling from maybe 3 times annual recurring revenue to possibly 0.5 times today. That’s why having a diversified retirement strategy that includes a dedicated pension plan is not just wise; it’s essential.
3 steps to building a robust and bullet-proof pension
1. Start saving early and save more
As a nation, we’re underinvesting in our retirement. Starting early amplifies the benefits of compound interest, turning the most modest contributions into significant sums over time. I don’t think it’s too early to start putting a small amount away from your very first job. That said, it’s never too late to start saving! For those in their 40s or 50s, making more substantial contributions can build a considerable pension pot in just a few years.
You may need a lot more than you think to enjoy a long and happy retirement. A pot of, say, €50,000 is simply not enough. For a comfortable retirement, you really want to be targetting an amount like €500,000, or more depending on your lifestyle. This won’t just happen by itself. You need a plan, a realistic timeframe, and the discipline to keep putting aside substantial amounts (particularly if you’re starting mid-career or later).
2. Get tailored advice from an experienced advisor
Navigating financial products can be daunting, and the pensions landscape is no different. This is where financial advisors and good accountants play a pivotal role. By providing tailored advice, they can help you develop a pension strategy that’s aligned with your goals, whether it’s an executive pension plan tailored for company directors or a Personal Retirement Savings Account (PRSA) for broader employee participation.
3. Keep up with legislative changes and opportunities
Recent legislative changes have made the pensions market even more accessible and attractive. For instance, changes to PRSAs mean that contributions are no longer seen as a benefit in kind (BIK), so your company can make significant payments towards your retirement that don’t have to be linked to your salary level, service to date, or amount of pension already accrued. This means you can transfer surplus company profits into your pension fund while maximising the tax advantages.
Every person’s pension strategy is different
In Ireland, the average pension fund for many workers remains modest, and women typically have less provision than men. That’s why successive governments have sought to make pensions contributions more attractive with significant tax advantages (remember, pensions also grow tax-free plus you can withdraw a portion tax-free upon retirement).
Whether you plan to work for as long as you can or can’t wait to take early retirement, the time to act is now. Regardless of your age or your financial goals, nothing beats having a plan in place and getting some clarity on what your numbers look like. An independent advisor will help you develop a diverse and effective plan for your retirement and ensure you can look forward to a secure and prosperous future.
With the right guidance and a proactive mindset, the path to a comfortable retirement is clearer and more attainable than ever before. Get in touch to organise a pensions planning session with Beyond.
