Is your pension working hard enough for you?

We all know we need to plan ahead, whether it's reserving a spot in our favourite restaurant or ensuring we have a comfortable retirement.

Pensions form the backbone of most Irish retirement plans. However, while many of us have ticked the box of setting up a pension, how many of us truly understand its performance and potential? Just having a pension isn't the endgame; ensuring it's working hard enough for the future is.

According to a survey by iReach Insights on behalf of Zurich, which examined the attitudes of adults towards paying into a pension, 34pc of those working have a company pension. And 46pc of workers without a pension are planning to start one within the next five years*.

The iReach research carried out in August 2023, also found that most adults (35pc) contribute less than €100 a month and the average monthly saving is €225. But the majority (74pc) of all adults would like to be able to save more into their pension.

Brendan McCormack, Executive Financial Planning Manager for Zurich, says for those who have a pension, it’s important to ensure that it is maximising its potential. Understanding the indicators to watch for is vital.

"A lot of people start a pension and think, 'Well, that's it, now, I have a pension in place.' But they should ask questions about their fund. How much are they paying in? How is the fund performing? What are the investment returns?

“It's really about the contributions that they're making to their pension. Can it sustain their lifestyle in retirement?"

With an ever-evolving landscape of pensions, Brendan McCormack, who has 30 years’ experience in the life and pensions industry, says his main message is to “regularly review your pension, understand its performance, and seek expert advice to ensure it's working hard enough for you.”

How is your pension performing?

One of the most pressing concerns for many with a pension is determining if their current pension plan is performing well enough for them. It's not just about the annual statements that arrive in your post, email or online account. Delving deeper into your pension's performance can help determine if it's working hard enough for you.

It depends on how much you need to have to continue your lifestyle into retirement. This can be different for everyone but on average, €28,257* annually is the amount expected for a person to lead a normal life after retirement.

How to check if your pension is working for you:

• Performance metrics - How does your pension stack up against the average returns in the market?
• Charges and fees - Understanding management charges, service fees, and other hidden costs is crucial.
• Contribution levels - It's important to ensure you're maximising your contributions if you want a larger pension pot.
• Investment choices - Depending on your risk appetite, you might want to evaluate if your current investment choices align with your retirement goals.

Brendan explains that “having a pension with Zurich Life gives clients access to a range of online tools and calculators that help them monitor all areas of their pensions including fund performance.”

“Customers get a statement from Zurich every year that will tell them what's in their funds, how much they paid in, and the performance that it has achieved over the previous year. And they also have our online portal, and they can download an app to their mobile phone linking them into their pension and any other Zurich Life policies they have.”

There are also the Zurich online calculators which are able to show projections for their future retirement fund, and what contributions they need to add to get to an amount they’d be happy with.

Upgrade or switch

If, after assessment, you find that your pension isn’t performing as well as it could be, you could consider a pension upgrade or a switch.

Brendan says, "Poor fund performance, poor service, difficult access to updates, expensive charging structures, and limited fund choices – these are the reasons why people might consider upgrading.

“The longer you leave it, the worse it's going to get, so it might be time to look at different options.”

Upgrading involves making extra contributions to your pension. And if you happen upon a lump sum of cash, one of the best places to invest it is into your pension.

“If someone is upgrading their pension, understanding the tax relief that's applicable is crucial. It's a massive motivation to have a pension in the first place.

There’s no other investment in Ireland that will give you 40pc tax relief on your premiums, this is the amount higher rate taxpayers can receive, if you are on the standard rate you will still receive 20pc tax relief.

You can pay a percentage of your income (capped at €115,000 per annum) to a pension, this rises incrementally from 15pc under the age of 30 to 40pc from age 60 onwards.

It also might be beneficial to switch providers to get better deals or performance out of your pension.

However, Brendan stresses the importance of understanding the implications of such decisions, "Exit penalties may apply on your existing plan or it may have a much lower management charge. Make sure to do the research before changing so it’s not just a knee-jerk reaction.”

Get advice

Brendan highlights the benefits of speaking with a Zurich financial advisor or an independent advisor before making any decisions about your pension.

They will examine your current plan and advise on whether you need to change anything to get the result you want in retirement.

Highlighting new offerings from Zurich, Brendan says, "Recently, we've started to roll out an online application system which makes it easier and quicker for a client to sign up, as everything is done electronically."

A few years ago, you would have to meet in person and fill out paper forms, but now, “you can arrange an online meeting and all documents can be signed electronically. We try to make retirement planning easier for everyone.”

Brendan’s message is clear: stay informed, seek advice, and ensure your pension is tailored to work best for you.

Taking a small action today and speaking to Zurich or a financial broker could have a great impact on your future. With a wide range of options, control and flexibility, you can choose a pension plan that’s right for you. If you’re wondering where to start, you can find a local financial advisor near you with the Zurich Advisor Finder.

*Source: iReach pension survey, August 2023

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as of 1st September 2023 and may change in the future.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

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