Keeping an eye on how your pension is performing is important. After all, how can you plan for your ideal retirement if you are unsure of the amount you will have when you get there.

 A quick chat and a simple pension review process once a year can help you plan the retirement you deserve.

There are several factors why a regular pension review is important. Below we break down some of the most important reasons in more detail.

1) Fees & Charges

Pensions and the industry as a whole is always changing. Although the industry is heavily regulated, it is important to be aware of any fees & charges associated with your scheme.

A lot of us set up a pension whether it be through our employer or on our own and forget about it. We see the Annual Benefit Statement arriving through the door but decided not to tackle it.

Yet, we find when we review pension arrangements for clients, 68% of clients decide to alter their fund choices.

Investment fund choices

Equities

These are shares in companies. They are bought and sold on the stock market.

Property

This often includes commercial property such as offices, industrial & retail premises.

Cash

These investments will earn short-term interest and have ease of access.

Bonds

These will usually be split into Corporate Bonds & Treasury Bonds (Government).

Many clients who review pensions were previously unaware of the management fees. Yet these fees and charges can have a dramatic impact over time. 

On average we may contribute to a pension over 20 or 30 years. Even a 0.5% difference over that period will have a significant impact on your pension fund.

For example, if we take someone who plans to contribute to a pension for the next 20 years at €300 per month, allowing for an investment return of 6% and an annual management charge of 1%.

Contribution per month €300
Number of years 20
Annual Investment Return 6%
Annual Management Charge 1%
Total Fees & Charges over 20 years €12,953

You can find more examples of the effect fees and charges can have on our pension review page.

This is why we offer a free pension review service.

2) Attitude to Risk May Change

As we get older our attitude to risk may change. A regular review of your pension will allow you to plan for retirement. Your initial target of having a specific amount in your pension at retirement may have also changed.

Without regular reviews and knowing how your pension is performing, it will be close to impossible to plan effectively.

Our pension review process is a quick and simple way for you to assess any current pensions. Some of us will have multiple pensions. Keeping track of different pensions can be difficult at times. A review will help keep your ducks in a row.

Review your pension

Your risk appetite may change throughout the years. It is only natural that you would be more comfortable with risk in your 30’s than at age 60.

Alternatively, your retirement needs may have changed and maybe you’re willing to take more risks.

This is another reason regular pension reviews are important. You can discuss these changes with your advisor and alter your investment strategy.

In Ireland, we use a scale from 1-7  to assess your risk appetite. However, although the numbers are universal, companies may look at different factors when gauging volatility.

3) State Pension

The Irish State pension system has been a topic of discussion in recent years. Already at a modest €248 per week, it has come under scrutiny.

The ability to fund such a system has been the main concern. Ireland has one of the fastest aging populations in Europe. This means that over the next 25 years our population over the age of 65 will double.

This will put huge pressure on an already stressed system. Add to this a longer life expectancy and reduced fertility rates for a perfect storm.

The State pension currently has a liability of approximately €350 billion. Worryingly, these State pension liabilities continue to rise by 10% each year.

Having a private pension in the future will be crucial. Additionally, a regular pension review will be even more important.

4) Life Expectancy

We are living longer, healthier lives. If you retire at 65, you still have approximately 20 years to enjoy your retirement.

That is a long time to play golf, go fishing or enjoy that long-awaited cruise. Although, it will be difficult to enjoy any of these on a shoestring budget.

Life expectancy

If we go back only as far as 1926, the life expectancy for males was 57.4 years. This increase in life expectancy means you’ll need more savings to enjoy those years in retirement.

As our survey shows, the average person in Ireland would like to have over €400,000 in their pension at retirement. To achieve a significant amount such as this, it will likely require regular pension reviews.

5) Covid-19

It is not too often that a global pandemic comes around. But it is not only from a health perspective where they have an impact. The economy took a huge hit and unemployment rose to new heights.

A knock-on effect from this meant there was an increased risk many would have a shortfall in retirement. The inability to save and contribute to a pension will cause problems further down the road.

Even before the pandemic, many Defined Benefit (DB) schemes were operating under stress and huge liabilities. 

Although, one positive thing is we seem to have learned from past mistakes. Many had their pension funds invested conservatively so even with the economy unstable, their pensions were not affected.

6) Compound Interest

Compound interest is your ally when it comes to long-term savings. Described by Albert Einstein as “the 8th wonder of the world”.

In simple terms, is the interest you earn on your interest. It accumulates over time and what may start as a small amount can grow significantly if left untouched.

Compound interest

Let’s say you put €1,000 into a savings account with a 10% interest rate. A little bit unrealistic but it keeps the example simple.

At the end of year 1, you will have €1,100. Comprising your initial investment of €1,000 along with €100 interest.

Initial Investment – €1,000
Interest Rate – 10%
Interest Earned – €100
Total | Year 1 €1,100

The €100 you earned is known as simple interest. By the end of the tenth year, you would have €2,594. That is without adding anything to your original investment.

The magic of compound interest!

7) You Might Have Multiple Pensions

The results from your fact-find and risk assessment will have an influence on your investment strategy.

Depending on personal preference, you may want to be heavily involved and know each intricate detail. On the other hand, you may want to leave it in the hands of your trusted advisor.

Either way, you will most likely have the following options available.

  1. Studies show we change jobs on average between three and seven times. Therefore, it is likely that a pension may have fallen through the cracks along the way.Perhaps you are looking for information on a pension from previous employment.Depending on the types of pensions, combining them may be an option. Having them all under one roof does make management easier.However, transferring is not always the best option. Each situation is different and enlisting the help of a qualified expert is always advisable. A lot will be dependent on the type of pension you have. Perhaps you were part of an occupational pension scheme whether it be Defined Benefit or Defined Contribution.Either way, keeping track of your pensions is important. Again, it will be impossible to plan appropriately for retirement if you are unsure of your benefits and their performance.

What are the next steps?

As with anything, it is important to know where you stand. Pensions are no different. You have gone to the trouble of setting up and contributing to your pension so ensure it is reviewed regularly.

Fees & charges can have a dramatic impact on your pension fund over time. What may seem trivial can add up to a significant amount over 10 or 20 years.

Be sure to enlist the help of an expert. More importantly, someone who can break everything down into simple English. If you chat with an advisor who speaks in jargon and using acronyms it might be best to look elsewhere.

We offer a complimentary consultation and would be happy to help. You can chat with a qualified advisor and if they feel there are aspects they can help you with you can take it from there.

Hopefully this blog provided you with some clarity regarding why having a pension review is important.

Kind regards,

Team at Pension Support Line

Review Your Pension Today

*This blog should be used for information only and not taken as financial advice.

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