The Retirement Planning Council of Ireland (RPC) is advising young people to start thinking about their retirement sooner rather than later, as financial planning is more important now than ever before.
“A lot of young people don’t think about retirement at all – it’s in the far distant future,” according to Paul Kenny, course leader with the RPC and former Pensions Ombudsman.
Young people have many other financial commitments that can take priority, but it is never too early to start thinking about a making a retirement plan and to look at contributing to a pension scheme.
“The state pension is currently payable at age 66 and Government intended to extend the age of payment to age 67 from 2021 and age 68 from 2028. While that is on hold for now, the age of payment is bound to rise in the future to reflect longer life expectancy, so it is quite possible that it may be even later than 68 by the time people in their 20’s and 30’s reach retirement. While they have other things to think about – saving for a deposit, paying their rent or students loans – they will reap the benefits down the line by making regular contributions to a pension from an early stage in their careers.” Paul Kenny added.
Consider your options
CSO figures show that two thirds of workers between the ages of 20 and 69 years have supplementary pension cover, ranging from almost 100% in the public service to much lower numbers in the private sector, where only 34% of those working in sales and customer service have any supplementary pension. Coverage is below 50% for workers aged 25 -34 and less than 25% for those aged 20-24. Young people need to plan ahead and evaluate the options available to them. While employers are obliged to offer a standard Personal Retirement Savings Account (PRSA) if employees are not eligible for a pension scheme within six months of joining an organisation, an employer is not obliged to contribute.
Explore available resources
The pension calculator on the Pensions Authority website is useful resource. This takes age, salary, projected age of retirement and target pension as a percentage of salary into consideration. The calculator also allows users to analyse their existing pension scheme and understand the contributions from the employer and employee.
Paul Kenny commented: “The pension calculator analyses a range of information and acts as a useful guideline in determining whether a pension scheme is likely to reach the target or if there is likely to be a surplus or a shortfall. If there is a shortfall, it tells you what extra you will need to pay in order to reach your target.”
After completing some desktop research into pension schemes, young people should consider seeking advice from a financial broker or adviser to get some professional guidance. Financial advisers can direct young people to the providers which are likely to achieve good investment performance and further advise on the charges and fees which will impact on their retirement savings.
Consider mid-career planning
According to the RPC, young people should consider meeting with a financial planner or attending a mid-career planning course in later years.
“Young people should explore their options with a financial planner in their 20’s and 30’s and consider mid-career planning options. Many people start thinking about their finances when they attend a pre-retirement course, shortly before they retire. Mid-career financial planning allows people to make any changes that appear desirable while there is still time to make a difference.”
The RPC is also encouraging people not to be afraid of retirement.
“Remember that, with people living longer and living better, retirement could be more than half as long as your working life, so it makes sense to start thinking about it as early as you can.” Paul Kenny concluded.