Yesterday’s tax deadline has come and gone and one thing that has become abundantly clear to us is that Ireland’s economic recovery is well and truly underway! People are starting to look to the future again and now have enough disposable income to begin or re-commence funding for their retirement. We experienced our highest volume of tax deadline pension contributions since 2008. From talking to a number of insurance companies this seems to be the consensus across the board, with one Life Office confirming that pension contributions were up 35% from this time last year.
Although we are delighted to see that people are putting a greater emphasis on their retirement funding, there are a number of questions that people who made last minute contributions need to ask themselves:
- Firstly, do you know what type of pension contract your contribution was invested in? There are a number of different types of products investors would have contributed to this week, including Personal Pensions, PRSAs and Executive Pensions. These products can vary significantly in terms of the level of charges that are deducted, the types of funds they can invest in and how retirement benefits can be taken. If you are not aware of what type of contract you have you should contact your financial adviser and find out, as it could have a major effect on what options you have at retirement.
- Secondly, do you know what charges were applied to your contribution? There are a number of different ways that advisers and insurance companies can apply charges to your contributions. These can come in the form of bid/offer spreads, premium charges, allocation rates, annual management charges and exit penalties. Did your adviser discuss with you what charges would be applied to your contribution? At Metis Ireland we strive to give all our clients 100% allocation on their contributions where possible. A 100% allocation rate means that there is no initial charge for making a pension contribution. If you are not sure what charges were applied to your contribution you should contact your adviser today.
- Thirdly, are you are aware of what fund your contribution was invested in? There are a huge number of funds available for investors in the Irish Market ranging from low risk to very high risk. Are you aware of what risk levels you are exposed to? A lot of investors, in their haste to make a contribution before the deadline, would not have discussed a fund choice with their adviser and may now be invested in a fund that is entirely inappropriate to their risk tolerance. Did your adviser conduct a risk profiling exercise with you to determine what your attitude to investment risk is?
- Finally, and this is possibly the most important issue for clients, did you make a contribution as part of an overall long-term financial plan or did you just write a cheque to reduce your tax bill for 2014? The latter is very often the case for those just starting out or those who are recommencing pension contributions. At Metis Ireland we have been advocating the importance of having a long-term financial plan for a long time now.
Have you considered how much you will need in retirement or when you will take retirement? If you have a business, have you considered how and when you will sell this? Are you aware of the reliefs that are available for retiring business owners and the requirements you will need to meet to qualify for these reliefs?
If you don’t have a plan in place there is a risk that you may not have enough income in retirement or that you won’t take your retirement benefits in the most tax efficient manner possible. You may be invested in funds that may not return enough growth to meet your retirement needs or worse, you may be invested in funds that are too risky for your personal circumstances and it could return a loss.
If you are unsure of any of the issues we highlighted above and are interested in talking to someone about implementing a personalised long-term financial plan, call our office on 061-518365 or visit our website www.metislife.ie to arrange a meeting with one of our directors.
Metis Ireland Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland. All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.