In conversation with personal finance expert Sinead Ryan and KBC branch manager John Gethin, IMAGE contributing editor Melanie Morris discussed everything we need to know about pensions, simplifying the selection process and answering FAQs.
There is a certain social taboo when it comes to discussing pensions. We commonly brush them aside as something we’ll deal with later on. And while we understand they are necessary for the later stage of life, the idea of saving a comfortable retirement sum can feel overwhelming.
But starting a pension is easier than we think, according to personal finance expert Sinead Ryan and KBC Life and Pensions branch manager John Gethin.
While talking to IMAGE contributing editor Melanie Morris, the two experts shattered this commonly believed myth of complicated pensions and broke down just how easy it is to find the right plan for you. Here, they answer commonly asked questions about the financial process and how to get started.
The pension process
Why are pensions considered the ‘unsexy’ part of finance?
“Well, they are quite boring because it can be hard for us to visualise what our life is going to look like in 20, 30 or 40 years’ time. Take a front end financial product like a PCP car loan - it’s very easy to see how that would work. It could be over in three years; you get a lovely, shiny new car that you can drive in the meantime. People can understand why they would want to enter into a financial contract like that. But when it comes to something that will see us in our 60s or 70s, we don’t do that as easily and therefore, it can be much harder to wrap our heads around it.” - Sinead Ryan
Should we consider pensions a bit more positively?
“For sure, far bigger sums are involved; it’s not as transient as a car loan or a holiday loan. It’s something that is going to be permanent and is going to last for a very long time. The Irish mortality age is very high, one of the highest in the world. So women will live, typically, to about 84, men to about 81 or 82, so we are much longer in retirement than we ever have been before. If you’re going to be in retirement for nearly as long as you’ve been working, that’s something you have to plan for.” - Sinead Ryan
Recently, we've been hearing so much about pensions on the telly and radio. Why is that?
“There’s this constant perception that pensions are very complicated and as an industry we probably don’t help that. We bake complexity into how things are approached. When in reality, it’s one of the most important financial things that you will do. In some recent research, we found that people were clear on what their retirement goals were but they were unclear on how they were going to get there. People need to understand: A) the simplicity of it (it’s just saving for your future); B) it’s about engaging with your future self. What we forget about is the power of compound interest. The more time you give yourself, the more you’ll actually have to enjoy that time.” - John Gethin
There are instant gratification gains to be got from pensions too, aren’t there?
“Sure, the first and most obvious are the enormous tax reliefs that are available. There is no other financial instrument available in Ireland, that I can think of, that offers you the same tax breaks that a pension does. This is because the government doesn’t want us relying on it when we retire. It wants us to make our personal arrangements, so it’s exceedingly generous. There are three tax breaks: 1) you get tax relief on the money going into the pension, 2) it grows tax free while it’s in there, and 3) you get a chunk of it tax-free at the other end.” - Sinead Ryan
Would you agree that women need to take more control of their finances?
“I couldn’t agree more with that. Women are poor at planning their own finances, and I mean that in a very kind way because women are givers. When they have money, they give it away before they spend it on themselves. So when it comes to providing something that is much longer-term it can almost seem selfish. Women don’t like to do that naturally. It is often that self-employed, single women are flyers here, picking up the financial yoke and running with it because they have to. So, it’d be great to see more women getting involved in their family's financial future.” - Sinead Ryan
The new Lifestyle PRSA (Personal Retirement Savings Accounts) feature of the KBC app is a simple way to open and manage your pension plan with KBC. Rather than spending an hour and a half in an office, having a drawn out and sometimes confusing conversation, you can begin the pension process your way, by finding the right plan for you through the easy-to-use app.
Once you’ve logged in on the app, it will already have your existing bank information with KBC on it so it’ll only need a few more things like your PPS number. (If you don’t have an account with KBC, there’s just one extra step. You’ll need to call the contact centre or drop into your local hub.)
Then you can set your retirement goal (e.g. €2,000 a month) and KBC will help figure out what it costs and help you choose the best plan for you. You can even sign all the paperwork needed via the app so the entire experience is not only simplified, but contact-free as well.
And once the plan is in place, one of the best features is that it is changeable. Users can raise or lower their regular contributions or even pause it entirely if an unexpected expense occurs like a broken washing machine or increased school fees.
Auto invest option
KBC also offers an option to all pension customers called ‘MyAutoinvest’. This is an investment strategy for all users, from beginners to expert investors. Customers can opt to have an investment strategy automatically selected for them, which focuses on their retirement age and is designed in conjunction with KBC Asset Management.
Or, for customers who want more choice, KBC has just launched the Lifestyle Extra PRSA for those who want to get more involved in their investment decisions and fund choice.
The pension app is especially ideal for self-employed people, who have no employer or HR department regularly taking their pension contribution out of their paychecks.
50% of Irish people do not have any private pension arrangements. This number rises to two-thirds for those who are self-employed. While most plan to rely on the state pension, it is only €12,991* and it’s pitched at one-third of the industrial wage.
This is why it is so important for people to take the reins and start providing for their own future.
Questions from IMAGE readers
What’s the ideal time for setting up a pension?
“The ideal time is now because you get the benefit of time. If you’re older are you snookered? No, you’re not. You mightn’t get as big a pot as someone who’s engaged a lot longer. You have considerable tax advantages like tax-free growth and a tax-free lump sum. There’s no reason why someone wouldn’t do it.” - John Gethin
Are you taxed on a private pension?
“No, it’s a tax-free environment as you are setting it up but when you draw the benefits down you can take some of it tax-free. With the balance, as you draw an income off that, you will pay tax because it is an income.” - John Gethin
If you are contributing into a pension, what are the tax breaks available?
“Depending on your age, between 15% to 40% of your income usually qualifies for tax relief. It’s very generous. Talk to your accountant or tax advisor and they will figure that out for you.” - John Gethin
What are the risks involved in not taking out a private pension?
“The risk in not doing it is far greater than the risk to your income in doing it. If you’re 55 now, you’ve only 120 pay days left in your life. As a result, you are having to fund for 220 pay days for retirement. So how do you want to spend the last 120 pay days? Where do you want that distribution of income to go? It could go to your kids, the next couple years’ holidays, a great handbag or you can secure something for your future. No matter what age you are, work out how many pay days you have left and then decide how you want that income split in the future.” - Sinead Ryan
If you don’t have a huge amount of cash at the moment or are unsure of your immediate future, can you advise how we should introduce or continue paying into a pension?
“Your goal should be decided by asking, ‘What do I want?’ and then determining what you need to put into it from there. Then negotiate with yourself. If you should be putting in x amount but you can only afford y amount, why is that? Are you buying little gifts for yourself that can be a bit excessive? Set your goal and track it. There will be times when life gets in the way with unplanned expenditures and that’s fine. That’s why our app gives you the flexibility to pause or reduce your payments. Keep engaging with your goal and adjusting it with pay rises or reductions.” - John Gethin
*The state pension is currently €12,911.60 (as of March 2019).
If you missed the IMAGE KBC Pensions Made Easy virtual event, you can watch it on demand here. For information on KBC’s new, hasslefree digital pension account, see kbc.ie/lifeandpensions, your KBC App, or call KBC on 1800 51 52 53.
KBC Bank Ireland plc is regulated by the Central Bank of Ireland. KBC Bank Ireland plc is a tied agent of KBC Insurance NV trading as KBC Life and Pensions for the provision of Personal Retirement Savings Accounts. KBC Insurance NV trading as KBC Life and Pensions is authorised by the National Bank of Belgium in Belgium and is regulated by the Central Bank of Ireland for conduct of business rules.
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